Key takeaway: Kotak’s FY21 annual report highlights that retail profit fell by +60% due to greater credit price & weak topline. Corporate loans shrank, but as opposed to peers RWA/asset didn’t fall & PSU loans fell. Deposit franchise is powerful with higher CASA & share of retail deposits. Stress loans are low & bank has buffer prov. of .6%, but NPL buffer adjusted for seasoning has moderated. We reduce earnings slightly, choose-up in development & clarity on succession crucial to rerating.
Retail profit falls +60% on greater credit price Casa franchise is powerful: In FY21, Kotak Bank saw a sharp 63% YoY fall in retail profit due to greater credit charges and slower topline development. Retail and agri NPLs rose 170-200bps YoY and retail loans grew 6% YoY led by secured segments like home loans and autos. Credit card additions have been muted at .1 mn, one third of additions in FY20. Bank’s liability franchise has carried out effectively with a) CASA ratio increasing to 60% of deposits (FY20 56%) and b) share of retail deposits at 63% of total is superior than ICICI and Axis. Deposit client additions have been healthier, with c.2.9mn debit cards added in FY21 (2.6mn FY20). Concentration of deposits is low with Top-20 depositors bringing only 10% of deposits and ALM is effectively balanced.
Weaker corporate development restricted de-risking: During FY21, bank consolidated its corporate loan book with 7% decline to 37% of total. We would have anticipated a tad more derisking from Kotak – but its consolidated RWA/asset ratio was largely flat at 72%, whereas other significant banks have seen 300-500bps YoY decline in FY21. This is regardless of the rise in share of bank/ government assured loans like ECLG to 5% of loans. Kotak’s share of PSU loans has been marginal and this has dropped sharply.
NPLs up, buffer on seasoning adjusted basis moderates: During FY21, slippages rose by 60% YoY and gross NPLs have been at 3.3%. NPL coverage was comfy, but adjusted for seasoning, surplus provision has moderated YoY. The bank has further provision of .6% (of loan book) against stressed loans.