Kotak Mahindra Bank, the country’s third largest private sector lender by market capitalisation, reported profit at Rs. 2,184.5 crores in September ended quarter, registering a 26.7 per cent growth year-on-year, aided by lower provisions. Rise in pre-provision operating profit, NII and other income also boosted profitability.

Net interest income – the difference between interest earned and interest expended – increased 16.8 per cent to Rs. 3,913.2 crores in July-September quarter 2020 compared to corresponding period previous fiscal.

Loan book declined 4 per cent year-on-year to Rs. 2.04 lakh crores and net interest margin contracted to 4.52 per cent from 4.61 per cent YoY, Kotak Mahindra Bank said, adding deposits at Rs. 2.61 lakh crores grew by 12.2 per cent YoY.

Provisions and contingencies fell 9.6 per cent to Rs. 368.59 crores compared to year-ago period, while the sequential fall was 61.7 per cent. Provisions included general provision for COVID-19 deferment cases (Rs. 13 crores in Q2FY21 against Rs. 616 crores in Q1FY21) and provision towards advances as well as others (Rs. 332.72 crores against Rs. 352.88 crores QoQ), the bank said in its BSE filing.

COVID-19 related provisions as at September 2020 stood at Rs. 1,279 crores (0.62 per cent of net advances). Non-specific provisions towards advances (including standard and COVID provisions) is at 177 per cent of the net NPA of the bank,” it added.

On the asset quality front, gross non-performing assets as a percentage of gross advances fell 15 bps quarter-on-quarter to 2.55 per cent in the quarter ended September 2020, and net NPA was down 23 bps QoQ to 0.64 per cent, partly due to Supreme Court’s interim order which directed on September 3 that accounts which were not declared as NPA till August 31, 2020 shall not be declared as NPA till further orders.

Hence, the bank said it had not classified any account (whether granted moratorium or not) as NPA after August 31.

“If the said Order was not given effect to, the gross NPA would have been 2.70 per cent and net NPA 0.74 per cent. The Bank has, however, made provision for such advances,” it added.

Pre-provision operating profit has seen sharp spike of 31.4 per cent to Rs. 3,297.49 crores in Q2FY21, compared to corresponding period last fiscal. Non-interest income increased 18.6 per cent YoY to Rs. 1,452.03 crores in September quarter.

Consolidated profit for the Q2FY21 increased by 22 per cent to Rs. 2,947 crores, including bank’s contribution at Rs. 2,184 crores.

Kotak Securities reported a 33.6 per cent YoY growth in Q2 profit at Rs. 199 crores and Kotak Mahindra Life Insurance 18.8 per cent rise at Rs. 171 crores, but Kotak Mahindra Prime’s profit fell 22.7 per cent to Rs. 133 crores in September quarter YoY.

LIC increased its stake in Kotak Mahindra Bank to 3.18 per cent at the end of September quarter, compared to 2.45 per cent in June quarter.

Overall the asset quality concerns weighed on the banking sector. Hence the stock has not seen any major movement during the September quarter and financial year 2020-21, falling 6.8 per cent and rising 6.7 per cent respectively, though it gained 26 per cent from March lows.