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Improving growth in Kotak Mahindra bank's loan book may enhance investor interest

While a slow momentum in its loan book growth seems to have played a role in this restrained performance, the June quarter numbers may enhance the investor confidence in the stock.

, ET Bureau|
Updated: Jul 25, 2017, 08.56 PM IST
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At time when most private sector players including banks have been clocking in 25-30% plus growth in their asset base the street wondered when the KMB loan book will move towards this trajectory.
At time when most private sector players including banks have been clocking in 25-30% plus growth in their asset base the street wondered when the KMB loan book will move towards this trajectory.
Shares of Kotak Mahindra bank (KMB) have been lagging its peers - most expensive private banks in terms of valuation – this year so far. Amongst the banks that trade at forward price to book multiple of 4 and above, KMB has yielded the lowest return of 38% in 2017 compared to 40%to 58% rally reported by HDFC Bank, IndusInd Bank and RBL bank. While a slow momentum in its loan book growth seems to have played a role in this restrained performance, the June quarter numbers may enhance the investor confidence in the stock.

As the fourth largest private sector bank, in terms of loan book, dealt with the post-merger alignment of businesses with that of ING Vysya Bank, the loan book growth was underwhelming in the last one year with the bank failing to meet its targeted 20% of loan growth in FY17 post demonetisation. At time when most private sector players including banks have been clocking in 25-30% plus growth in their asset base the street wondered when the KMB loan book will move towards this trajectory.

However, the June quarter numbers may have turned a corner for the bank in terms of its asset growth performance. Not only has KMB reported its highest loan book growth (18%) in the last five quarters but also shown good traction in loan growth of several key segments. The corporate loans which accounts nearly a third of the loan book has reported 21% y-o-y growth for another quarter and the management is confident to report up to 25% of expansion in this division in FY18 as they focus on increasing exposure to better rated corporate clients and pushing for customer acquisition.





Albeit on a relatively lower size, the commercial vehicle and construction equipment (CV &CE) maintaining a 40% plus growth for a second consecutive quarter. The bank has increased its focus on this segment for the last one and a half years and expects to gain further market share by end of FY18.

On the retail side, effect of demonetisaion has waned with both - home loans & loans against property (LAP) and small businesses, personal loans & credit cards - segments reporting their highest y-o-y growth in a quarter ( at 17% and 24.3% respectively) since the merged entity came into existence . Here again, the management acknowledged that strong consumption story is likely to support the growth momentum in this space.





While the business banking or (SME) division where post-merger integration of operation was carried out last, continues to remain a laggard the pain seems to be fading. As against de-growth reported in each of the previous three quarters, the segment reported a marginal growth of 3.2% in the June quarter compared to last year. Going ahead, as the bank is looking to take advantage of the transition in this sector from informal to formal business models post demonetisaiton and GST implementation along with maintaining good under-writing standards the traction is likely to remain healthy.

If all these segments maintain their pace of growth over the next one or two quarters, the street is will reward the strong growth in the bank's liability franchise (CASA at 43.9% compared to 37.4% a year back) more handsomely.
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