The Q2 profit of Kotak Bank (Rs 940 crore) was broadly in line as loan growth picked up (8% QoQ), NIMs improved (10 bps QoQ) and non-bank subs showed healthy traction. NPL provisions (~80 bps) were still high, in line with the guidance to provide for stressed erstwhile ING book.
Combined loan book grew strong 8% QoQ driven by healthy traction from most of the retail segments. Management guided for strong 20% YoY loan growth for the full year. NIMs improved (to 4.3%) supported by rise in CASA ratio (~200 bps QoQ to ~36%).
Profitability of the bank (ROA of 1.3%) is still muted as fee inc is weak and cost to income (~55%) is high as well.
Opex normalised to an extent as merger related expenses were down (R12 crore vs R63 crore in 1Q) and one-time retirement benefit of R340 crore taken last quarter. PPoP/assets improved to 2.4% but remained lower vs peers.
Profitability of the bank (ROA of 1.3%) is still muted as fee income (1.4%) was weak and cost to income (~55%) is high as well. While the merger remains on track with more products being launched at erstwhile ING branches, the full synergy benefit is likely to become visible only from 4Q onwards.
ROEs may rebound back to ~16-17% in FY17/18E.
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