Kotak Mahindra Bank Ltd Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Chintan Joshi - Autonomous - Analyst : Can I start with your recent interview where you had kind of expressed a desire to be the #3 private bank in India. If I look at kind of where consensus estimates are and extrapolate it, it feels like you need to grow 8% to 9% faster than your peers? And the question I have is I'm talking about. [Technical Difficulty] REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 19, 2024 / 11:30AM, KTKM.NS - Q2 2025 Kotak Mahindra Bank Ltd Earnings Call So my question was related to your objective of being #3 private sector bank in India. If I extrapolate kind of where consensus estimates are, it feels like you need to outgrow your peer by 8%, 9% per annum for the next five years. What I was interested in understanding was the products, the geographies and the subsidiaries in which you could grow outgrow your peers to get to that -- to achieve your objectives? And then the second question was on the margins. If you could highlight what kind of sensitivity we would be facing from the RBI rate cuts? And how much offset will they be from the (inaudible) and the savings account rate cuts that you've announced. So if you could kind of give us a picture on margins or how they might evolve over the next year?

Question: Chintan Joshi - Autonomous - Analyst : That's fair enough. But I guess I'm trying to think about the near term in terms of the NIM impact from three factors, RBI rate cut, the (inaudible) and the savings account reduction.

Question: Sumeet Kariwala - Morgan - Analyst : I had a question with respect to margins over the last 2 quarters. So margins have come down from 5.7 to 4.9 and I was looking for some waterfall and what has happened. So I see three or four factors. One is basically a change in loan mix. Second is higher liquidity as reflected in MCR. Third is IPO flows, okay? And for this Sonata, the way in which it was accounted in the fourth quarter than first quarter. So if you can give me some breakup, that will be very helpful because your margins have come down by 35-odd basis points. .

Question: Sumeet Kariwala - Morgan - Analyst : Okay. I was looking for some quantification, but that's finely one. And second is on asset quality. When do things stabilize. This quarter was slightly higher on slippages, and I also see coverage moving over QoQ. So I guess coverage moving lower Q2 is because of fresh slippages, but I just wanted to get some idea as to how do you look at coverage and where are we on the (inaudible).

Question: Kunal Shah - Citi - Analyst : So firstly, with respect to the entire (inaudible) portfolio, if you can indicate in terms of the profile in terms of the average ticket size, how it's panning out. And earlier also, we have seen Kotak in not so sizable acquisition, it in the MFI or the vehicle financing, and that's continued even on PL side. So should we assume that those inorganic opportunities would be relatively few of the subsegments of a smaller site or maybe evaluate a slightly maybe a larger inorganic as well. Yes. So that's the first question.

Question: Kunal Shah - Citi - Analyst : And when maybe RBI slightly (inaudible) with respect to growth in the unsecured side. Maybe does it maybe how would it be looked upon from the regulator side because that growth still continues from our end in this segment, yes? . Unidentified Company Representative No, look, I think the two are completely different. RBI basically is saying, right, that you've got to get your technology stack, stack under control. And we are working very, very hard on that. I think they've said as part of that, but you can't do digital onboarding. And the portfolio acquisition is something -- these opportunities come along and when they come along, we will look at these opportunities. And this tuck-in portfolio acquisitions is what we really, really like because we just bring in the portfolio. We don't have to pay for cost of acquisition. It's an easy kind of switch across. It's a business we know. It's a risk we understand, and it's very accretive back from word go. So I just wish more of them came along. We did Sonata, we did Standard Chartered, others come along, we'll love to do these kind of things. Technology infrastructure buildout that continues and those two events are completely independent of each other.

Question: Kunal Shah - Citi - Analyst : Yes, sure. And secondly, on this RBI is supervisory action given that we are very much like almost a quarter into it. And generally, the way we have seen the restrictions getting lifted for most of the other names in terms of the period that it generally takes. What is your assessment in terms of where we are, would RBI look at some kind of (inaudible) lifting of the restrictions what could be the time line that you would want to assign given the progress which you are very confident about in terms of it's going very well on track. If you can just give some comments on that, yes. Unidentified Company Representative Look, it's impossible for me to know how the RBI is thinking or on what date they're going to say the embargo is lifted, right? That is a question for the RBI. And obviously, the sooner the better from our perspective. What I do know is that we are working exceedingly hard and kind of systematically knocking out any kind of points of failure, any kinds of things that have been brought up in the RBI exam points, anything that we think can improve risk and resiliency. And, of course, the work that we are doing is also being validated by our external auditor. That should give the RBI greater comfort that what we are saying is validated by an independent kind of person. Having said that, that's all I can do. After that, frankly, it is in the hands of the RBI. And at some stage, they will determine that we've made enough progress to lift the embargo offers.

Question: Kunal Shah - Citi - Analyst : No, on slippage, slippage. . Unidentified Company Representative Yes. So you are right. From the slippage, credit card does constitute about 13% to 25% of the share of that, the net slippage. I think we are very, very hopeful that in quarter three and four, we will have recoveries from the ruler and (inaudible) businesses which will sort of help us to reduce the slippage going forward further in the Q3, Q4.

Question: Manish Shukla - Axis Capital - Analyst : I wanted to check what proportion of your loan book is linked to repo and external benchmark?

Question: Manish Shukla - Axis Capital - Analyst : So the question here earlier is that we are at a margin level where we were in June 22 and May 22 is when we had the first rate hike. While I appreciate that timing and quantum of RBI rate hike is not known, but -- if we take a 6 to 12 months view rate cuts, sorry, is inevitable. So what contingencies would you have in that scenario? Because the 60% is linked to repo and we get a 50 bps cut. That's a pretty decent (inaudible) from your yield on loans? Unidentified Company Representative So I think -- see, it's not just on the rate cut on the advances side. As you have seen, when the rates went up, there was a repricing of the deposits as well, with a lag. So similarly, as when the rate cut comes down, we also would expect the cost of deposits also to fall with a lag. And the 60% is something which is -- if I look at the peers, it is something across the board. And Kotak is no different from the others. So I think as we got the benefit when the rates grew up as the deposits reprice with the lag. Similarly, when the rates go down, the deposits also will reprice downward, and we will start seeing the inflow coming.

Question: Parameswaran Subramanian - Nomura - Analyst : Firstly, on -- again, on the credit cost. So in the fourth quarter -- a couple of quarters ago, we had taken a big write-off and we had explained that it was largely the unsecured and credit card businesses. So that pertains to the longer vintage and secured NPLs, right? So what we are seeing now in this quarter is more (inaudible) delinquencies of more recent vintage. Is that the way to look at it? Unidentified Company Representative No, no, no, no, no. One second. What we did in April, much but for the quarter ended March was we changed the way we do the accounting, right? Throughout the period, what we've been doing on unsecured, we've been providing 100% at 180 days, right? But the actual write-off which we take, we were taking two years hence to make. So what was happening is our GNPA was showing elevated kind of numbers. To try and make it in line with the industry, we bought it -- we bought down the right top from two years out to 270 days (inaudible) right? That was the big change that we did for the last quarter of last year, right? That is just an accounting change. It has nothing to do with -- frankly, it made no difference to the P&L or anything like that. That was just so that the numbers you could become it made your life easier because you could compare numbers across banks. What we are saying separately is that separately, and we -- frankly, we called this out about 2, maybe threequarters ago, two or three quarters ago, we said that there is a certain amount of over leverage in the system. And that over leverage in the system is starting to show up. The initial place where it showed up was on the micro finance business. And then it showed up to some extent in the credit card business. And so you see the loss costs and the credit cost kind of following through. What we are also saying now is that we expect post Diwali that we will see a certain amount of recoveries, particularly in the businesses that are linked to the rural parts of India, and improvement in credit costs in the next threeto 6, 9 months in portfolios like credit cards. That is the entirety of what has happened, how we think things will happen and what you're referring to for the last quarter of last year was really just a big accounting change.

Question: Parameswaran Subramanian - Nomura - Analyst : Fair enough. Very clear, Ashok. So my second question, again, is just data. So how much of the slippage in this quarter was from the micro finance segment? Or is this something that -- where we expect slippages to come through in subsequent quarters? Unidentified Company Representative No. So this quarter also has steps from micro finance business. So as I said, while the majority of that is from the credit card business, micor credit also had a share of -- it shares the slippage ratio.

Question: Saurabh Kumar - JPMorgan - Analyst : Just two questions. So one is on the RBI norms on investments, what are your thoughts if you had to consolidate both Kotak (inaudible) and other lending subsidiaries within the bank? And the second is just in terms of Kotak Prime specifically and also in the bank, I mean, how many of these customers will have -- like Kotak Bank customers will have an account from the bank as well. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 19, 2024 / 11:30AM, KTKM.NS - Q2 2025 Kotak Mahindra Bank Ltd Earnings Call

Question: Saurabh Kumar - JPMorgan - Analyst : Okay. And just in terms of your slippages, what percentage will be coming from these linked accounts basically? And would you expect the strength in credit cards to also go up in your personal loan portfolio? I mean that.

Question: Saurabh Kumar - JPMorgan - Analyst : So how much of your slippages will be coming from the linked accounts. So basically (inaudible) card business. .

Question: Saurabh Kumar - JPMorgan - Analyst : Got it, sir. And you -- at this current point, you would not expect the credit losses in your card business to eventually go up to the PL portfolio. Is that your (inaudible).

Question: Rikin Shah - IIFL - Analyst : Just one basic question. The Stage 3, I mean, the provision coverage on NPAs has come off sharply in this quarter. Just wanted to understand what would be the comfort level that we would like to operate given that we are not carrying any buffer provisions.

Question: Rikin Shah - IIFL - Analyst : Perfect -- and just one data keeping question, if I may.

Question: Jai Prakash Mundhra - ICICI Securities - Analyst : Sir, on the (inaudible) transaction, what is the price that we are paying? I mean I hope because there is a bit of a risk or the rising stress in the personal loan portfolio, are you paying at par or this is subpar. And are there any risk mitigants in case the delinquency turns tend to be higher REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 19, 2024 / 11:30AM, KTKM.NS - Q2 2025 Kotak Mahindra Bank Ltd Earnings Call than that may be the current level, that public disclosure says that the retail GNPA is 2.6%, which is at the retail level itself, INR 20,000 crores, not the personal loan portfolio. So I would like to get your comments there.