Kotak Mahindra Bank has had a rather tough five years; it has not done well as compared to the Nifty Bank index. Nevertheless, it has kept its asset quality high and its stock price has gained only 19%, as against 68% of the index. These factors included regulatory constraints and relatively high equity valuations, but with the RBI lifting its ban, Kotak is well placed to stage a recovery.
The bank’s loan book has grown at 15% CAGR and stood at ₹4.3 trillion in FY24. Consumer lending is 45% of the total loan book and 77% of the loans are secured. Kotak has been quite cautious in avoiding the risky unsecured loans during the stressed period. This is because India’s mortgage market is projected to almost double, and Kotak is well placed to capture growth in credit demand.
On the deposit side, Kotak’s deposits have expanded to ₹4.5 trillion over the past year at 14% CAGR, but its CASA ratio has shrunken to 45.5% from a high of 60.4%. This has resulted in higher funding costs for the bank, which has led it to concentrate on cross sell and higher rate term deposits.
Net interest income has expanded by 18 per cent to ₹337 billion in FY24, but net interest margins (NIM) have narrowed marginally due to higher funding costs. RBI rate cuts may also erode margins going forward, however, Kotak has gone ahead and cut its savings account rates to reduce the impact.
The asset quality is still good with gross NPA standing at 1.39% and net NPA at 0.34%. The bank has a conservative provisioning policy which makes it stable, but stress in microfinance and commercial vehicle loans may influence credit costs.
Kotak’s net profit has grown at 21% CAGR over the last five years and ROE is 15.3%. Kotak’s valuation with a price to book ratio of 2.9 is below historical averages but in line with peers like HDFC Bank. While the upside is still limited, Kotak’s numbers suggest that the company has a steady road to recovery.
