Kotak Mahindra Bank anticipates a stabilization in funding costs in Q4, even with a margin pinch

Kotak Mahindra Bank anticipates a stabilization in funding costs in Q4, even with a margin pinch

The management said that, subject to changes in external interest rates, it anticipates a gradual stabilization of the cost of financing in the next quarters.

Kotak Mahindra Bank posted strong profit and net interest income (NII) figures for Q4FY24, but margin issues were brought on by rising cost of funds. The private lender saw a contraction of 47 basis points (bps) in its net interest margins (NIMs), falling to 5.28 percent in Q4FY24 from 5.75 percent a year earlier. The management said on the analyst call after the results that, barring changes in external interest rates, it anticipates a steady stabilization of the cost of financing in the next quarters.

"In the next quarters, we expect the cost of financing to continue rising, but more slowly than in previous ones. Following the release of its Q4 results, Kotak Mahindra Bank said, "The stabilization of the cost of funds depends on fluctuations in external rates.

The private lender's net interest margins (NIMs) contracted by 47 basis points (bps), from 5.75 percent in Q4FY24 to 5.28 percent in Q4FY24. Nonetheless, there was a little increase of 6 basis points from 5.22 percent in Q3FY24.

Because of the ongoing high cost of funds, the majority of banks have seen their margins either stagnate or decline in the present environment. Bank management projections, supported by predictions of lower lending rates in the second half of the fiscal year, indicate that margins may remain pressured for the next one to two quarters before beginning to normalize.

The biggest private lender in India, HDFC Bank, maintained its margins in Q4FY24, whereas the second-largest, ICICI Bank, had a 50 basis point YoY decline in margins over the same period.

In Q4FY24, profit-after-tax (PAT) increased by 17% YoY to Rs 5,337 crore, while Kotak's NII increased by 13% YoY to Rs 6,909 crore.

Regarding asset quality, the bank's net non-performing assets (NNPA) remained constant at 0.34 percent during the March quarter, while its gross non-performing assets (GNPA) decreased to 1.39 percent from 1.73 percent in Q3FY24.