Kotak Bank: Lower cost of funds prevents margin slide

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Subscribe to enjoy similar stories. Kotak Mahindra Bank Ltd’s standalone cost of funds has fallen quarter-on-quarter (q-o-q) to 5.06% in the December quarter (Q3FY25) from 5.15% as it benefited from cutting the savings account deposit rate by 50 basis points (bps) to 3% for balances under ₹5 lakh in October. Hence, the bank could marginally increase its net interest margin (NIM) to 4.93% in Q3 from 4.91% in Q2 despite the pressure on yield on advances.

Some part of reduction in yield on advances was due to the loan book tilting towards higher secured lending that fetches lower rate than unsecured loans. Slippages, the lead indicator of asset quality, has dropped sequentially to ₹1,657 crore from ₹1,875 crore. Lower slippages mean lower credit cost--i.e.

lower provisioning and write-off in future that augur well for future profitability. The only segment that saw q-o-q increase in slippages was microfinance loans. Also read | Kotak Bank's rollercoaster: From setbacks to surging Q4 performance There could be some improvement in NIM as the bank’s acquisition of personal loan portfolio of ₹4,100 crore from Standard Chartered Bank is likely to be added to the books in Q4.

However, the acquisition also carries risk of higher slippages in future as personal loans are unsecured. Considering that the bank could bring down the unsecured loans as a percentage of net advances q-o-q to 10.5% from 11.3%, the acquisition could at the most push up the overall unsecured loans as a percentage of net advances to the Q2 level, which is still relatively low versus some leading banks. Advances and deposits grew almost equally by about 15% year-on-year (y-o-y), which ensured that the bank’s loan-to-deposit ratio (LDR) remained flat 87%.