Kotak finds saviour in finance ops, margins feel the squeeze

The Citi India Investor Conference provided an ideal platform to Kotak Mahindra Bank to flex its financial muscles. Investors took note.

The financing business is setting the pace for Kotak. It has grown substantially over the last 3-4 years, both in terms of revenues and profits. The management expects the growth curve to remain strong in the medium term though a moderation cannot be ruled out due to the higher rate environment.

[caption id=“attachment_24593” align=“alignleft” width=“380” caption=“Kotak does not see any signs of deterioration in asset quality across segments - retail and corporate. Photo by Eurok/Flickr”]  [/caption]

The FY12 loan growth is likely to be around 30 percent against 40 percent in FY11. Key drivers of growth are corporate and commercial banking segments.

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Kotak’s Net interest margins (NIM) have been under pressure over the last few quarters due to a shift in loan mix to more corporate assets - lower yielding -as well as rising costs of funding. The management expects NIMs to stabilise close to the 5% level over the medium term, which would still remain well ahead of the industry standards.

The breather is the company does not see any signs of deterioration in asset quality across segments - retail and corporate. Costs may not trouble much as credit costs are believed to remain relatively low in the current year despite concerns on the macro indicators front.

Kotak’s capital market segments have seen intense competition and lower profitability levels these days. These trends are expected to continue over the medium term and will be a profitability drag. The saving grace is the life insurance segment that is churning out profits and is among those with a decent track record of high efficiency on capital utilisation in the industry.