Kotak Mahindra Bank (KMB) is one of India’s leading private sector banks. It is known for maintaining its excellent asset quality even during financial stress.
Although the bank has presence in many other business areas, including broking, life insurance, and asset management, the standalone banking entity contributes the most to its profit, 85%.
Notably, the bank’s performance has not been up to the mark on Dalal Street, with its share price delivering just a 19% return in the last five years, against the Nifty Bank’s return of 68%, despite robust performance.
KMB underperformed bank nifty significantly
One reason for this vast underperformance is the KMB valuation running ahead of time. RBI’s ban on issuing credit cards and adding new customers digitally also impacted its business, which has now been lifted. However, this is a thing of the past now.
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Now, the important question is where Kotak Bank stands as an independent entity in terms of its financial position and valuation. Let’s have a look.
Strong loan book focused on consumer credit
KMB has a strong advance book, which has grown at a compounded annual growth rate (CAGR) of 15% in the last five years to ₹4.3 trillion in FY24.
The book grew by 20% over last year, led by strong overall performance. Strong 20% growth in secured consumer books, 20% in commercial books, 21% in corporate banking, and 18% in SME books drove this strong performance.
KMB Advances’ book is highly diversified. 45% of the book comes from consumer loans, followed by commercial, corporate banking, SME, etc.
Bank contributes 85% to the consolidated entity
Source: KMB Q4FY24 Investor Presentation
Furthermore, 77% of the book is secured loans, while the rest is unsecured. Notably, unsecured retail advances, which are under stress with rising defaults, constitute 11.8% of net advances, increasing just 1.8% from FY23.
KMB’s proactive approach to identifying risks in this sector and curbing loan growth when the segment showed signs of stress is commendable. This foresightedness speaks volumes for KMB’s pristine asset quality in the banking sector.
The bank expects advance growth to continue at the current rate, especially since India is still a credit-starved economy.
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