ICICI Securities on Tuesday upgraded its ratings on Kotak Mahindra Bank from ‘HOLD’ to ‘ADD’.

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The brokerage said the bank’s Q3FY21 earnings were characterised by rising comfort towards lending to better-rated large corporates (up 7% QoQ), MSMEs under sovereign guaranteed ECLGS schemes (Rs97bn till date), and secured retail portfolio (up 5% QoQ).

The bank has disbursed Rs 97 billion till date under (>5% market share of system ECLGS disbursements against its credit market share of 2%) which it disbursed to 50-60 percent of ex-corporate/mortgage portfolio as eligible pool.

According to the brokerage, no excess leveraging was reflected in the YoY growth - many customers who took Emergency Credit Line Guarantee Scheme (ECLGS) benefit have lowered their utilisation of other limits.

“On anticipated lines, proforma GNPAs rose to 3.27% (from 2.7% in Q2FY21), SMA-2 settled at 0.3%, approved restructuring was much lower at 0.28% (suggesting sub-4% stress pool) and well covered with provisioning build-up of 2.9%.”

However, unsecured retail and commercial vehicle (bus operator segment) portfolios are reflecting disproportionate stress.

“Credit cost for Q3FY21 and 9MFY21 at 115bps suggests our FY21E estimate of 160bps (ask-rate of >300bps) is too conservative, hence we revise it to 1.3%/1.2% for FY21E/FY22E, thereby leading to earnings upgrade of 7%/3%, respectively.”

ICICI Securities pointed out that overhead costs failed to cheer due to rising spends towards a few growth initiatives.

On subsidiaries, auto financing and investment banking gained earnings traction while international subsidiaries saw a dip.

The stock has corrected 9 percent since its downgrade to HOLD and now the brokerage has upgrade it to ADD with the target price unchanged at Rs 2,023.