Despite a marginal dip in loan book, reliance on credit substitutes in a market impacted by slowing economic growth helped Kotak Mahindra Bank report a 22 per cent growth in consolidated net profit at Rs 2,947 crore for the July-September quarter.
Without denying the speculation about a merger with smaller rival IndusInd Bank, the private sector lender said the objectives of a recent, Rs 7,000-crore capital raising exercise included acquisitions but added that it will be using the money judiciously.
On a standalone basis, it reported a profit after tax of Rs 2,184 crore for the July-September quarter, up 27 per cent compared to the year-ago period. Total income (standalone) rose to Rs 8,288.08 crore in the July-September period as against Rs 7,986.01 crore in the year-ago period.
The core net interest income grew by 17 per cent to Rs 3,913 crore despite a nearly 4 per cent decrease in loan book and the net interest margin coming down to 4.52 per cent from 4.60 per cent.
Its joint managing director Dipak Gupta said that for the last few months, the bank has been depending more on credit substitutes like certificate of deposits, commercial paper, non-convertible debentures for its earnings by deploying its deposits.
"What we chose in the last six months is cautiousness about credit growth until the economy comes back to normal. Hence we chose market-linked growth during this period of time. Given the circumstances, we believe this is a more secure way of growing," Gupta explained.
He said there is a reasonable L-shaped recovery taking place at present but the growing, upper-side of the 'K' is very small and added that the bank is more cautious about unsecured lending products like credit cards and personal loans.
Gupta said the bank is uncomfortable about the small business segment as well, but added that the aid received from the government through the guarantee scheme is helping this segment.
"As and when things open up, we will get back to the credit side (growth) also. At this point of time, the risk return opportunity does not justify for us to press the accelerator on lending. It does not mean we are not lending," he said, adding the non-urban and mortgages segments are doing well.
The profit growth would have also been helped by expenses being kept stable at Rs 2,068 crore by reducing spends on aspects like salary for senior executives, vehicles and other administrative costs, Gupta said, adding that this number would have been higher by about 15 per cent otherwise.
About Rs 92 crore of advances for the bank could have potentially slipped into non-performing assets (NPAs) but for the Supreme Court mandate not to classify such advances as NPA, group chief financial officer Jaimin Bhatt said.
The bank reported a gross NPA ratio of 2.55 per cent for the second quarter, which would have been 2.70 per cent if not for the SC's relief, Bhatt said.
He, however, added that the bank has taken provisions for those as would be required for an NPA.
It added Rs 13 crore to the COVID provisions and the total money set aside for the pandemic now stands at Rs 1,279 crore.
Bhatt said the provisions for taxes were also nearly doubled because the outgo was lower last quarter on account of the government's move to get the rate down to 18 per cent.
From a restructuring perspective, Gupta said such requests are limited to retail borrowers at present and added that the corporate and small business segments are yet to come forward with such requests.
The other income was marginally higher at Rs 1,452 crore for the quarter as fee income remained depressed, but the revenue line was helped by recoveries, Bhatt said.
The share of the low-cost current and savings account deposits rose to 57.1 per cent as of September 30 and Gupta said deposit mobilization will continue to be a key focus for the bank.
The overall capital adequacy came in at 23.4 per cent with the core tier-I at 22.8 per cent, largely on the back of over Rs 7,000 crore capital raise undertaken by the lender, while Bhatt said the higher capital also helped the treasury income.
Among the subsidiaries, which now contribute nearly a fourth of the overall profits, the securities, life insurance and international subsidiaries reported growth in profits, while the same for the non-bank lender was down.
The bank scrip gained 2.36 per cent to close at Rs 1,415.75 on BSE, as against a 1.33 per cent dip in the benchmark.