Uday Kotak says Kotak Mahindra Bank 'needs to be clear on lending' as profits dip by 10% in Q4

Kotak Mahindra Bank's profits falls by 4% in fourth quarter earningsIANS
  • Kotak Mahindra Bank reported a 10% decline in net profits in its fourth-quarter earnings.
  • Uday Kotak, CEO of Kotak Mahindra Bank, said the private sector entity will 'need to be clear on lending'.
  • He emphasised how the stagnation in the real estate sector is likely to have a heavy impact on banks.
Kotak Mahindra Bank reported a 10% decline in consolidated net profit at ₹1,951.82 crore for the fourth quarter ended March 2020 compared to the same time last year. The bank had to provide 167% more provisions for possible bad loans after the COVID-19 outbreak.

Kotak Mahindra Bank's net profits over the last five quartersKMB quarterly earnings reports/Flourish/BI India

Uday Kotak, the CEO of Kotak Mahindra Bank, struck a note of caution soon after the earnings. "The real estate sector is obviously going through a pain, which will have an impact on the financial sector," he said during the fourth-quarter earnings call. "We need to be clear on lending to the sector, focus on companies’ fixed costs and the level of leverage it is carrying," he added.

The prudence in Kotak’s voice struck a chord with analysts. For instance, despite the rising risk for India’s banking sector as a whole, broking firm Motilal Oswal set a target price of ₹1,350 ⁠— implying gains of 13% from the closing on May 13 ⁠— with a ‘neutral’ rating on Kotak Bank.

Kotak Mahindra Bank's share price since the nationwide coronavirus lockdown was announcedBSE/Flourish/BI India

Kotak Mahindra Bank Q4 Growth
Provision for bad loans (QoQ)167%
Gross NPA (QoQ)7.14%
Source: Kotak Mahindra Bank fourth-quarter earnings. All growth is year-on-year unless otherwise specified.

Analysts have pointed out that the bank's asset quality could be at risk with its exposure to loans in vulnerable sectors like auto and unsecured personal loans, which are some of the worst affected in the current situation with factories closed and unemployment on the rise. Together, they account for nearly 24% of Kotak’s total loans, according to a UBS report dated 13 April.

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