Shares of Kotak Mahindra Bank were trading in the green on Thursday after it reported a healthy operating performance in the fourth quarter of fiscal 2020 driven by a rise in interest margins amid improvement in asset quality.

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The bank’s Net Interest Income (NII) in Q4FY20 increased to Rs 3,560 crore from Rs 3,036 crore in Q4FY19 while Net Interest Margin (NIM) rose to an all-time high of 4.72 percent.

CLSA believes that Kotak Mahindra Bank will be a beneficiary of the recently announced fiscal package as it has a higher share of MSME loans. The Finance Minister on Wednesday had announced Rs 3 lakh crore collateral-free automatic loan for businesses, including MSMEs.

CLSA raised its earnings estimates for the bank by 10-12 percent for FY21/22CL and increased target price to Rs 1,450 from Rs 1,425 per share and values the bank at a 3.3x March 2022 adjusted PB.

Kotak Bank reported a 10 percent on-year fall in standalone net profit to Rs 1,266.6 crore, hit by COVID-linked provisions.

Around 26 percent of loans by value availed the RBI moratorium up to April 30, the bank said.

The bank’s CASA franchise remained strong with 24 percent growth to the peer-group high of 56 percent.

“While FY21 profits will be dragged by weak topline and higher credit costs, we see a rebound in FY22 and Casa-led share gains,” brokerage Jefferies said in a note. The brokerage retained ‘Buy’ ratings on Kotak Mahindra Bank as it remains among Jefferies’ top picks in the sector.

Asset quality during the quarter improved significantly. Gross NPA during the March quarter declined 7.13 percent to Rs 5,026.89 crore as against Rs 5,413.20 crore in the December quarter. Gross NPA (as a percentage of gross advances) fell to 2.25 percent versus 2.46 percent, QoQ.

Net NPA declined 19.07 percent to Rs 1, 557.89 crore from Rs 1,925 .08 crore, QoQ. Net NPA (as percent of net advances) fell to 0.71 percent from 0.89 percent, QoQ.

Jefferies believes that the recently announced package for SME should also help abate pressures on asset quality.

“In 4Q, reported slippages were lower due to moratorium, and coverage ratio stands at 69 percent. We believe that the bank should be able to manage its asset quality as it consolidated on growth in SME segment and has lower exposure in unsecured loans,” Jefferies said.

At 11:35 am, shares of Kotak Mahindra Bank gained 0.54 percent to Rs 1,192.85 apiece on the BSE.

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First Published:May 14, 2020 12:46 PM IST