Kotak Mahindra Bank shares surged over 9 per cent on Monday; the private sector lender was the biggest lender on the benchmark BSE Sensex as well as the bankex index, in the backdrop of its strong December quarter earnings announcement. The investor euphoria was visible in several other banking stocks, too, with Yes Bank, Canara Bank, State Bank of India, HDFC Bank and Bank of Baroda, all rising between 1 per cent to 3 per cent.
On a standalone basis, Kotak Bank reported a 10 per cent year-on-year rise in quarterly net profit at Rs 3,305 crore. The lender's net interest income had also risen 10 per cent from a year ago to Rs 7,196 crore. From an asset quality perspective, its gross non-performing loans were at 1.50 per cent in the December quarter versus 1.73 per cent a year ago. While advances rose 16 per cent, deposits grew 15 per cent from a year ago.
Kotak Bank's earnings prompted rating upgrades by a few brokerages. Analysts at JM Financial Institutional Securities noted that Kotak Bank had shown early signs of recovery in asset quality, while non-lending subsidiaries had continued to do well. Kotak Securities, its broking arm, had reported a 46 per cent rise in quarterly net profit at Rs 448 crore. Kotak Asset Management saw its net profit in the third quarter jump 64 per cent to Rs 240 crore.
"Kotak Mahindra Bank reported relatively better growth and asset quality performance amid the uncertain and tough environment," said Anand Dama of Emkay Global Financial Services.
Analysts at Nuvama Institutional Equities believe Kotak Bank's earnings offer both growth and quality and could turn out to be among the best in the sector.
A key challenge that Kotak Bank has been facing is the ban the Reserve Bank of India imposed last year on onboarding new customers through online and mobile banking channels. The issuance of new credit cards has also been halted.
Analysts note that while the lender's management has highlighted continued efforts with respect to resolving the embargo, resolution timelines are still unknown.
"The bank has done a particularly commendable job turning in a strong third quarter even as it weathered the RBI ban," said the Nuvama analysts.
Emkay's Dama had earlier pointed out that slower credit growth and margin/ asset quality pressures were likely to weigh on banks' earnings in the near term.
Against this backdrop, Kotak Bank's earnings were delivered in a tough quarter, and that's why the stock surged.
Kotak's Bank's earnings were also in sharp contrast to the earnings of its smaller rival, RBL Bank. RBL reported an 86 per cent drop in its third-quarter net profit at Rs 33 crore, mainly due to rising provisions against non-performing assets. RBL Bank's shares hit a 52-week low of Rs 146 on Monday, before recovering in noon trade, although still trading in the red.
