Kotak Bank net down 26% on higher provisioning

Net NPA stood at 0.93% compared to 0.81%

Private sector lender Kotak Mahindra Bank has seen a 26 per cent drop in its consolidated net profit for the first quarter ended June on account of higher provisioning after the completion of its merger with ING Vysya Bank .

The bank posted net profit of Rs 516.57 crore compared with Rs 698.31 crore in the corresponding quarter of the previous financial year. In November 2014, Kotak Mahindra Bank had announced that it was acquiring ING Vysya Bank in an all-stock deal. Provisioning in the April-June quarter jumped to Rs 321.90 crore on a consolidated basis from Rs 27.24 crore in the corresponding quarter a year earlier. In the quarter ended March, the bank had reported a provisioning of Rs 78 crore.

Uday Kotak, executive vice-chairman and managing director of Kotak Mahindra Bank, explained the increase in cost was mainly on four accounts —increase in retirement benefits of employees of erstwhile ING Vysya Bank of Rs 339 crore; provisioning of bad assets of Rs 305 crore; integration cost of Rs 63 crore and another Rs 30 crore due to increase in additional interest incurred on savings account deposits being paid to ING Vysya Bank customers.

Earlier, ING Vysya Bank customers were earning an interest rate of four per cent on savings bank account. However, Kotak pays an interest of six per cent for balance above Rs 1 lakh.

“Out of the increase in NPA (non-performing assets) provision, a significant portion comes from ING Vysya’s portfolio. All stressed assets of ING have been moved into a separate division. It was about six per cent of their total asset book and 2.5 per cent of the combined book,” said Kotak. He added that most of the stressed accounts were from the construction and infrastructure sector.

However, the growth in the bank’s net profit was mainly on account of improvement in the net interest income and other income. Consolidated net interest income, the difference between interest earned and expended, grew 43.2 per cent to Rs 2163.49 crore in the first quarter. Other income improved by 35 per cent to Rs 898 crore from Rs 666.66 crore in the same quarter a year ago.

Kotak added the bank had seen strong growth from the retail segment. Advances at the end of the June quarter were Rs 1,03,614 crore where as deposits improved to Rs 1,16,812 crore.

Net interest margin, a key indicator of bank’s profitability, was recorded at 4.18 per cent.

The bank remains well capitalised with capital adequacy ratio, including unaudited profits according to Basel-III norms as of June 30 at 16.5 per cent with Tier-I ratio at 15.3 per cent. The bank said it has no immediate fund raising plans.

Kotak Mahindra and associates are significant shareholders in Business Standard Private Limited