Kotak Mahindra Bank sees cost rise after ING Vysya deal

MUMBAI (Reuters) - Kotak Mahindra Bank, India's fourth-biggest private sector lender by assets, expects its credit costs to jump this fiscal year as it makes more provisions related to its purchase of smaller local rival ING Vysya Bank, it said on Thursday.

Kotak Mahindra agreed in November to buy ING Vysya for $2.4 billion in what was the country's biggest bank takeover. The operations were combined effective April 1.

Kotak Mahindra's credit costs will be about 80 basis points for the fiscal year to March 2016, compared with 30 basis points last year, Managing Director Uday Kotak said after the lender reported a 56 percent decline in its first-quarter profit.

Provisions including for bad loans and employee retirement benefits jumped 22 times from a year earlier, dragging down Kotak Mahindra's net profit to 1.89 billion rupees ($29.52 million) for the three months to June 30, from 4.29 billion rupees a year earlier.

The lender had taken "some of the tougher calls" on provisioning which will continue for the rest of this fiscal year, billionaire Kotak told a news conference, adding he saw credit costs coming down to a "normalised" level from next year.

"We think the merger is going well and we are very confident about it adding value as we go in the months and years to come," he said.

Gross bad loans as a percentage of total loans rose to 2.31 percent in the June quarter compared with 1.85 percent in the March quarter. Provisions totalled 3.05 billion rupees.

Kotak Mahindra has moved the stressed loans that came to it through the ING Vysya acquisition to an internal "bad bank" and is focusing on recovery, Dipak Gupta, a joint managing director at the lender said.

($1 = 64.0200 rupees)

(Reporting by Devidutta Tripathy and Aman Shah; Editing by Mark Potter)