Kotak Mahindra Bank Stock Analysis | Best Banking Stock in India

Kotak Mahindra Bank Q3 FY2019-20 Financial Highlights

Introduction

In this article, we are going to see Kotak Mahindra Bank Q3 FY20 results update. Lower tax rate and steady operating performance lead to 24% rise YoY in Net Profit of Kotak Mahindra Bank for the October-December quarter.

Kotak Mahindra Bank Q3 FY20 Results Update

Q3 FY2019-20 Results Analysis

• Net Interest Income (NII) is increased by 17.2% YoY driven by :
  • Growth in advances of 10.3% and deposit growth of 12%
  • Improved Net Interest Margin of 4.69% for Q3 FY20
• Operating profit is increased by almost 23% YoY on account of :
  • Increase in Balance sheet size by 10% YoY
  • Rise in efficiency of bank YoY (Improved cost to income ratio YoY)
  • Net Revenue growth 22% is more than Operating Expenses growth 19%
  • However, Operating profit reduced by 4.8% QoQ due to :
    • Moderate QoQ growth 2.1% in Balance sheet
    • QoQ Fall in efficiency (cost to income ratio deteriorated QoQ)
    • Net Revenue growth 4.3% is much less than Operating Expenses growth 13.5%
• Provisions and contingencies for the quarter Q3 FY20, were Rs.444 Cr
• Net profit rise of almost 23.6% YoY in spite of 1.4% lower PBT in Q3 FY20 is mainly due to
  1. Corporate tax rate cut :  Effective tax rate has came down to 18% in Q3 FY20 from 35% Q3 FY19
  2. Operating Profit growth 23% YoY

Q3 FY20 Balance sheet Summary

• Balance sheet size has reached to Rs.3.23 Lakh Cr in Q3 FY20, which is increased moderately 10% YoY and 2.1% QoQ.
• Total Advances and Total Deposit growth were also steady with a year on year growth of 10.3% and 12% respectively.

Key Ratios

Deterioration in the Asset Quality

• During Q3 FY20, Asset quality was deteriorated slightly and slippages were elevated.
• Gross NPA increased to 2.46% in Dec-19 quarter from 2.07% in last quarter and 2.32% in Dec quarter previous year. While Net NPA is increased to 0.89% in Q3 FY20 from 0.85% in Q3 FY19. Asset quality improved slightly QoQ as far as Net NPAs are concerned.
• Provision Coverage Ratio (PCR) has also come down to 64.4% in Q3 FY20 from 66.2% in Q2 FY20.

CASA Ratio

• CASA Ratio improved to 53.7% in Q3 FY20 from 50.7% last quarter and improved slightly from 53.6% last year. It is because :
  • Total deposits have grown by 10.3% YoY and 1.6% QoQ

Capital Adequacy Ratio (CAR)

• Kotak Mahindra Bank’s total Capital Adequacy Ratio (CAR) as per Basel III guidelines was at 18.21% as on December 31, 2019 from 16.52% as on September 30, 2019. CAR is well above the regulatory requirement level given by RBI.
• CAR has improved to 18.21% in Q3 FY20 from 18.15% in Q3 FY19.

Net Interest Margin (NIM)

• Net Interest Margin (NIM) and the asset growth, both drives the Net Interest income of the bank.
• NIM for the quarter Q3 FY20 improved to 4.69% from 4.31% in Q3 FY19 and 4.61% in Q2 FY20.
• Interest expenses in Q3 FY20 has seen a fall of 3% QoQ and 0.2% YoY, which also contributed to the improved NIM for Dec-19 quarter.

Cost to Income Ratio

• For Q3 FY20, the Cost to Income Ratio has deteriorated to 49.95% from 45.16% in Q3 FY19. It is mainly because of higher growth in operating expenses 19% YoY. The ratio was 50.33% in Q2 FY20.
• Cost to income ratio of any bank tells how much cost is incurred to generate operating income of Rs.100 for the bank. The improvement in the cost to income ratio of Kotak Mahindra bank in Q3 FY20 indicates the rise in operational efficiency of the bank.