Kotak Mahindra Bank’s December quarter results reflect a lot of luck and some grit as well. At a time when the currency withdrawal had hit credit growth for most banks, the private sector lender’s loan disbursals grew 12%, driven by its corporate loan book rather than retail book, which was the case for most banks. The lender’s corporate loan book expanded by 23.6% while its retail disbursals consisting of loans to homebuyers, small businesses, personal loans and loan against property grew by 12%.
But there is more. According to Dipak Gupta, joint managing director of Kotak Mahindra Bank, the third quarter numbers reflect more of the integration of the lender with ING Vysya Bank rather than demonetization on the asset side. This simply means that the merger paid off and as processes and operations of both banks meshed, the output generated was more in terms of higher loan growth.
The effect on deposits is, of course, as expected. The lender’s current and savings account ratio surged to 42% as of 31 December, driven by a 45% jump in savings account balances. This gave muscle to its margins, making them expand to 4.49%.
However, Kotak Mahindra Bank didn’t escape the effects of the currency withdrawal. Its loan disbursals to small and medium enterprises stagnated and Gupta said that the bank had noticed a slowdown in the momentum of disbursals from November onwards due to the currency withdrawal. Perhaps investors should watch out for lingering effects of demonetization in the coming quarters.
Asset quality was a mixed affair with bad loan ratios deteriorating from a year ago despite the strong loan growth. Gross non-performing assets (NPAs) were 2.42% of the total loan book, higher than 2.3% a year ago while net NPA ratio stood at 1.07%, which was higher than the 0.96% in the year-ago period.
It is no surprise that the stock surged 7% to Rs794.65 on Wednesday as the private sector lender delivered a net profit growth of 39% for the quarter ended December, beating the estimate of the most bullish analysts. At this price, the shares trade at a steep multiple of 5.28 times expected book value for the current fiscal year.
But investors should perhaps wait another quarter to assess whether the management’s guidance of a strong FY17 second half comes true.