What worries Kotak Mahindra Bank investors? | Tech US News


Shares of Kotak Mahindra Bank Ltd have lagged the broader markets. In the past one year, the stock has lost 15%, while the Nifty Bank index has lost 1%. Analysts believe that stock prices were expensive to begin with. Second, an impending management change is called an overhang for the stock.

Analysts at Nomura Financial said, “The change in management will be a key catalyst, as we believe Street places a significant premium on Ade Kotick as chairman, as he has driven the group since the bank’s inception and the core has moved the narrative forward,” said analysts at Nomura Financial. Advisory and Securities (India). Uday Kotak’s tenure as Managing Director and Chief Executive Officer ends in December 2023.

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What worries Kotak Mahindra Bank investors?

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The bank’s recently announced September quarter (Q2FY23) results did little to boost investor sentiment even as net interest margin (NIM) rose 25 basis points (bps) sequentially to 5.17%. reached, a multi-quarter high. In its earnings call, management said the expansion in NIM was due to an increase in the repo rate, the loan book mix of the fixed and floating rate book, and an increase in the unsecured book.

The bank’s loan book grew by 5% sequentially and 69% of loans were at floating rates. Higher yielding unsecured retail advances (including retail microfinance) rose to 7.9% in Q1 compared to 8.7% in advances. Here, management believes they have adequate room for growth and targets to reach mid-life.

On the other hand, gross deposits increased by 3% sequentially. The ratio of current accounts to savings accounts was muted at 56% compared to 58% in Q1. “There are concerns over deposit traction as Kotak is operating at 90% loan-to-deposit ratio. Loan growth at 25% per annum is not sustainable. We expect it to come down to below 20%.” Krishnan ASV, Institutional Research Analyst, BFSI, HDFC Securities said. “To fix the pace of deposits, we believe the bank will have to increase the deposit rates of its savings accounts, leading to a higher cost of funds,” he said.

Investors should explore branch expansion. Branches will be added permanently but the density requirement will now be less, management said. There is peace of mind about asset quality. In Q2, gross non-performing assets (NPA) and net NPA ratios declined by 16bps and 7bps to 2.08% and 0.55%, respectively, supported by strong recovery and upgrades.

“We believe Kotak remains a great franchise but it is in the investment stage and with the current crunch for deposits, it needs to work harder than big banks like ICICI Bank and HDFC Bank. May fall,” said Krishnan.

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