Kotak Mahindra Bank - Low Cost Liability Banking Franchise

Kotak securities responding to the Zerodha Challenge. Zero Brokerage for Intraday and 0.25% delivery.


Hi All

Quite average results in my opinion and as expected the price action before the result and immediately after the result conveyed this in very articulate words.

Q3FY21 PPOP down 6% from Q2 & up 23% from FY20.

Retail & Wholesale revenues flat compared to Sep FY21.

CASA ratio of 58.9% which is quite good.

Provisions also up I believe.

Let us see how things pan out in the next quarter which I think is also very important.

Kotak Q3FY21.pdf (3.5 MB)


Disc: Continue to be invested and added in last 30 days.


Bank Q4FY21 highlights:

  • PAT at Rs. 1,682 cr up 33% YoY
  • Operating Profit at Rs. 3,407 cr up 25% YoY
  • NII at Rs. 3,843 cr up 8% YoY
  • NIM at 4.39%
  • CAR for the Bank as per Basel III, as on Mar 31, 2021 is 22.3% & Tier I ratio is 21.4%

Advances & Asset Quality for the Bank:

  • Advances up 4.5% QoQ to Rs. 223,689 cr
  • NNPA at 1.21%
  • SMA2 outstanding was ` 110 cr (0.05% of net advances)
  • Credit cost other than COVID provision 84 bps for FY21

Bank FY21 highlights:

  • Operating Profit at Rs. 12,215 cr up 22% YoY
  • PAT at Rs. 6,965 cr up 17% YoY
  • NII at Rs. 15,340 cr up 14% YoY
  • NIM at 4.41%


  • CASA ratio as on Mar 31, 2021 at 60.4% vs. 56.2% as on Mar 31, 2020
  • In addition, TD Sweep at 7.5% of total deposits
  • Avg. SA for FY21 up 27% YoY to Rs. 108,812 cr
  • Avg. CA for FY21 up 17% YoY to Rs. 39,481 cr
  • CASA + TD < Rs. 5 cr is 91% of total deposits

Consol highlights:

  • Consol PAT for Q4FY21 Rs. 2,589 cr up 36% YoY
  • Consol PAT for FY21 Rs. 9,990 cr up 16% YoY
  • Assets under mgmt/advisory ~Rs. 323,762 cr up 43%
  • Subsidiaries and associates contributed 35% of consol PAT for Q4FY21

Source: https://twitter.com/KotakBankLtd?s=20


Pretty hard hitting note in ‘The Wire’ about KTMB. Twenty Years for Uday Kotak as CEO, and the Tailor-Made Exceptions That Allowed It
Mkt seems to be jittery to the news of succession planning within KTMB. Given that HDFC recently had a successful transition, I don’t think this is worrisome given strong track record of Mr. Uday Kotak. Are mkt concerns misplaced? Any thoughts?


I’ve been studying KMB last few days and feel there is good growth ahead for subsidiaries such as Kotak AMC, Kotak securities, Kotak Capital given the fast evolving Indian capital markets ecosystem with market participants only increasing, thanks to the bull cycle we seem to be in!

Even though valuations aren’t cheap, there is inherent holding co discount and the optionality of their subsidiaries getting listed in the long run to unlock further value apart from actual busiess growth in under-penetrated market.
(Of course management hasn’t indicated any near plans to list but am hoping as these businesses attain scale that becomes more likely if you trace path of HDFC, ICICI, etc.)

Around ~35% of PAT contribution is from non bank entities.

Kotak AMC: Kotak AMC QA-AUM has one of the highest growth amongst top players in the latest quarter and been coming up with NFOs too.

Similarly Kotak securities seems to be going in right direction with competitive brokerage plans and smart tie-ups with Fintech players such as StockEdge.

KMB also has 15% stake in MCX which is a good investment.

Have not studied their Prime (Vehicle financing), Kotak insurance, etc in depth but am hoping UK / mgmt wisely allocates in subs as per the business cycle.


Looking forward to seeing Sum of the parts (SOTP) valuations of KMB from other brokerages after KMB quarter results to see if there is reasonable upside from current levels.

Disclosure : I’ve allocations to HDFC, ICICI, RBL and recently added Kotak. Also hold HDFC AMC and exploring ICICI Securities. Am thinking of a concentrated portfolio with KMB instead of tracking and holding so many financial institutions.


Bank Q1FY22 highlights:
PAT at Rs. 1,642 cr up 32% YoY
Operating Profit at Rs. 3,121 cr up 19% YoY
NII at Rs. 3,942 cr up 6% YoY
NIM at 4.60%
CAR as per Basel III, as on June 30, 2021 is 23.1% & Tier I ratio is 22.2%

CASA ratio as at June 30, 2021 at 60.2% vs. 56.7% as at June 30, 2020
Avg. CA up 28% YoY to Rs. 46,341 cr
Avg. SA up 10% YoY to Rs. 116,218 cr
Avg. TD Sweep up 24% to Rs. 22,208 cr
CASA + TD < Rs. 5 cr is 92% of total deposits
TD Sweep at 8.0% of total deposits

Advances & Asset Quality:
Advances at Rs. 217,465 cr
NNPA at 1.28%
Credit cost on advances was 133 bps (annualized); (84 bps for FY21, excl. COVID-19 provision)

Consol Q1FY22 highlights:
Consol PAT at Rs. 1,806 cr
Major Subsidiaries PAT for Q1FY22: Kotak Securities – Rs. 236 cr, Kotak AMC & TC – Rs. 107 cr and Kotak Mahindra Prime – Rs. 79 cr, Kotak Life Insurance – Loss of Rs. 243 cr
Assets under mgmt/advisory ~Rs. 343,708 cr up 32%

Source - https://twitter.com/KotakBankLtd

Dividend record date - August 12, 2021

Investor Presentation

Presentation for GS symposium

Earnings Call

Quarterly Financials

Annual Report 2020-21



There is a clear visible change in Kotak’s outlook for growth. Uday Kotak is comparing current period with the likes of 2003. Next couple of quarters could show us good growth on the bank’s books.

Conf Call Q1FY22 Notes:

  1. Our current planning is on the basis that, yes, there is some risk of 3.0 coming, but the intensity of that will not be anywhere near as vicious as COVID 2.0. Yes, there could be implications, there could be impact, there could be significant amount of job losses; and therefore, indirect, impact on consumer’s ability to pay his loans and debts. But overall, I think, we should not have as bad a situation going forward as we did in May 2021. And it is on this expectation that we are looking at planning our way forward.
  2. And this brings me to the whole area of economic growth and how do we see it. We certainly see the economy coming back and we can debate whether GDP growth for the current year is going to be 9%,9.5%, 10%. But this is broadly the range in which I would like to currently assume the GDP growth to be, give or take around the 9% mark.
  3. And it brings me back to how are we thinking at Kotak about growth. As I had mentioned to you a couple of quarters ago, after getting the initial feeler on the COVID situation, if you go back to our call on October 2020, we were clearly having a mindset shift towards a higher growth on the lending side.
  4. We do not believe in selling our loans to ARCs, nor do we believe in a philosophy of what is popularly known as flexi loans. So we continue with our reasonably clear philosophy with reference to recognition and we will continue to do so.
  5. By early end May, early June, we started getting a huge flow of claims from various sources in our life insurance business, and we had a Board Meeting by middle of June and immediately Kotak Life Insurance shared with the bank and we shared with the investors the fact that there was an abnormal increase in death claims coming out post end-April. And we were the first of the block to alert the market that there is an issue and mortality claims are going to be significantly higher than at least what we had anticipated or planned for coming out of COVID 2.0. And this was something I think on 15th or 16th we disclosed this to the market, that there is an impending tidal wave hit which has happened in the month of May. Therefore, irrespective of what statistics may have reported on the deaths which happened in the month of May, insurance claims, which is cash to be paid out, is finally a real evidence, is finally a real evidence of the levels of mortality which have happened to people who have been insured.
  6. And the ratios were multiples of what any underwriting could have planned for and significantly higher than the experience of Wave 1.0. And we had given a profit warning from the insurance company, indicated a loss of between Rs 225 crores to Rs 275 crores, against a previous year profit of Rs 160 crores. And we have finally reported today Kotak Life Insurance loss for the quarter was Rs 243 crores, making a delta move over last year’s quarterly profit in the insurance company itself in excess of Rs 400 crores. And that of course has impacted our consolidated earnings with this delta of Rs 400 crores on an after-tax basis.
  7. We have still not seen big demand from corporates for new capacity creation and things like that, it is largely working capital utilization, which is just switching hands. And obviously, that brings in its own challenges in terms of pricing, which we are seeing in the market. But our focus remains very clear that we maintain high asset quality and look for higher wallet share in corporates in a manner that our non-risk income grows definitely faster and significantly faster than the assets, and we can maintain a sustainable ROE in the business.
  8. We are still a bit cautious on the commercial and retail sectors, but we are seeing very, very positive trnds on the residential project side and we are continuing to build that side of the business. In fact, in the projects that we have financed, the Q1 flow-throughs of collections of these projects were 40% higher than the overall average of the last year, and almost 3x more than what it was in the first quarter of last year. So the projects have financed continue to be showing extremely good sales, and we continue to want to build the residential project share in this business.
  9. If I take the consolidated numbers, this quarter, we end with the consolidated profit of Rs 1806 crores compared to Rs 1853 crores last year. A large part of this drop, as Uday explained initially, comes from the life insurance loss for this quarter, which is Rs 243 crores as against a profit of Rs 161 crores last year.
  10. Adjusted for the life insurance loss, the consolidated number would have been about 20%+ plus.
  11. Bulk of the slippages are retail and commercial bank, clearly. And the corporate bank is amazingly pristine. And on a relative basis, we are also seeing the SME bank hold up quite well. Tractors and commercial vehicles is where we saw the bulk of the impact and to a certain extent in construction equipment where people had an issue about getting money from state governments during the quarter.
  12. We are probably among the lowest cost of funds in banking. This is despite us paying on saving deposits at an average about 50 bps to 60 bps more than some of our large competitors. So despite a higher cost of savings deposits, which we still have, and we have a CASA ratio which helps us on the mix side to be able to have significantly low cost of funds and gives us great ability to carefully chip away without hurting the core franchise.
  13. RBI takes overnight money from banks for its surplus at a daily compounded rate of 3.35%. You take a one year treasury bill, it’s give or take around 3.75% to 3.8% yield. Now instead of putting money here if you put money in a corporate loan, you have straight away an additional cost of priority sector lending. After that what is your ROE or risk-adjusted return on capital is a tough question you have got to ask. And therefore, if priority sector lending is a cost, is it better to be doing debentures for those companies versus giving a loan? And we ask these tough questions and take the tough calls, because finally the priority sector lending cost is a cost which hits a bank over three to five years. I can easily be short-term in my approach, growing my lending book by taking huge bets end of the quarter and show higher growth. But I will pay the price over three to five years by putting money at 2.5% for three to five years. And we don’t want to get into that. We would rather do what makes business sense for a franchise today.
  14. A corporate will shop and take money from anybody, whether it’s a bank or a mutual fund, they are going for the lowest rate. If they save 20 bps, they will take the money. And public sector enterprises where a lot of lending has happened, they have auctions of bidding and some of the auctions have gone at a lending rate for 90 days and 120 days sub 4% and large amounts Rs 5000 to Rs 10000 crores kind of lending banks have done. And they have been able to show a significant growth in their loan growth, but it is not value accretive. It is important to know that income growth is as important as asset growth. Our income growth is significantly more than our asset growth. So I think the corporate banking business has to be seen as a sustainable ROE business, and as long as your profits grow, you are okay.
    And profits grow because of better wallet share on other product than only loans. Loans are most times, at the top end of the corporates, loans are the worst ROE product. So just correlating the corporate bank health with just asset growth is not the right way to look at it.
  15. I will rather focus on growing in mid-market and SMEs, that is where we would focus on our growth rather than the top end corporates or PSUs. Because that is riding a tiger at poor ROEs and paying a price on priority sector.
  16. And in some of these large corporates, and especially PSUs, the more profitable part of the transaction banking business, which is very difficult to get or it doesn’t come easily because it goes to the PSU banks largely, to make an overall client RoE, RaROC, the risk-adjusted basis return on capital employed for that customer asset is very critical.
  17. Largely we are into Tier 1 developers only. There is small exposure at Tier 2 level, depending on the project quality. But otherwise, largely our exposures are in the Tier 1 builders.

AR FY21 Notes:

  1. Geography is history. We are transitioning to a world where ‘location’ will be increasingly irrelevant. India’s army of talented software engineers, analysts, consultants can provide their services to the world sitting in India. And for a service economy like India’s, this can be a boon. India can be the front office as well as back office of the world.
  2. India in 2021 is also where we were in 2003, at the early stages of an investment cycle. The growth driver for India will be infrastructure - both physical and social. You will see a significant shift in our approach, one of greater aggression, one that is even sharper on execution.
  3. During the year, we have undertaken a mindset shift to make retail and commercial lending our focus, in addition to the corporate and deposit franchise. For example, we are leveraging our low cost of funds to offer a competitive interest rate on home loans.
  4. Home loans give us an opportunity to build a longer-term relationship with customers. And we will get bolder in unsecured retail finance too, for which we’ve kept our powder dry over the last two years.
  5. "DigiSign", an end to end eSignature and eStamping of documents, was introduced by your Bank. This solution helped the Bank to send all required documents to the customer electronically and get the same e-signed and stamped by the customer. This brings speed, reduces customer physical touch points and helps to seamlessly process the documentation for lending.
  6. Your Bank launched Kotak UNI Account for students pursuing professional courses from premier institutes. Every year, large number of students graduate from various Universities / Institutes and join Corporate India. With this offering, your Bank intends to co-create with the universities to ensure that the workforce entering Corporate India is not just skilled but also financial prudent. This program offers facilities such as Digital Banking with 180+ features on Kotak Mobile Banking App, Pay or recharge phone, DTH, or any bill, Scan and Pay facility for contactless and cash free payments, Dream Different Credit Card, benefits from curated brand offers and exciting deals.
  7. Corporate India turned out to be more resilient than earlier envisaged. Strong capital markets, both debt and equity, helped corporates raise funds that ensured that leverage remained at comfortable levels on company balance sheets.
  8. In order to capitalise on market opportunities and offer holistic solutions to clients, your Bank has taken steps to improve integration between its different businesses including Lending, Debt Capital Markets, Wealth Management and Investment Banking. These steps have resulted in an increase in cross divisional synergies and execution of complex solutions such as syndication of structured debt to wealth investors, referring of Investment Banking solutions to wholesale banking clients and such others. As part of this strategy, your Bank has an integrated Corporate and Investment Banking (CIB) approach towards certain top conglomerates and large corporates. The CIB model has ramped up well over the years for your Bank.
  9. Your Bank sees a lot of interest, amongst clients, in the choice of GIFT City as an upcoming fund jurisdiction.

Conf Call Q3FY21 Notes:

  1. Unsecured retail consumer in our book is about 6% of our loans, but the delta on pro forma NPAs between September quarter and December quarter the delta share of unsecured consumer retail is delta 40% of the delta, which means 6% of the loan book has given the delta of 40% of the difference between pro forma situation as of end of September versus end of December.
  2. ECLGS is a govt guarantee for any customer with the defined parameters, where the govt has said that we, the GoI, are giving guarantee for the 20% of the loan amount. That is how it was originally launched. The govt made a clear indication that it is expected that all the customers who are eligible under this, since there is a sovereign guarantee, the banker’s money is safe. Therefore, it is a quasi-sovereign risk which a bank is taking. Therefore, if you look at the COVID especially the earlier periods, you were looking at how do you bridge the gap between a company having a possibility to save itself versus going down immediately. So for ECLGS was introduced with the purpose of giving people a chance to survive and the states crept in and said “I take the risk, you Mr. Banker go out and give the money. It is my risk.” And we want MSME category of companies to have chance for survival. So if our risk is a sovereign risk and we are giving companies a chance for survival with the downside being taken by the state, we think that is the win-win for all. It is a win-win for the customer who has a hope for survival. It is a win-win for the bank because effectively that marginal lending is based on a sovereign risk, but also enables the bank to improve the quality of customers’ ability to survive, therefore has indirectly got the advantage of helping the base loan itself because it gives the customer a chance to survive. We think it is a complete positive for us, and which is why we went all out and did a pretty large share of the market.
  3. If you look at a customer who was, say, 30 days overdue on 29th of February, he remained 30 days overdue on September 1, assuming he took both the moratoriums. But September 1 to December 31, he would inevitably fall into an NPA category, 90 days plus. Similarly, if somebody who was even zero day overdue, and had taken moratorium 1 and 2, on September 1 he would be zero days, but by 31st December he would be 90 days plus. Therefore, rather than using analytical tools, what we felt is if we take the 90 day plus as all as proforma NPA, it will give you a very large portion of the flow through which would happen, which would have happened out of the moratorium.
  4. I think one of the best steps the GoI took was to give the ECLGS scheme, it has really protected many, many small and medium businesses otherwise who would have fallen off the cliff in this pandemic.
  5. Even within SA, we have become more careful about wholesale money, which is liquid fund money coming into SA because of higher yields, so we are managing that challenge also. Because liquid fund returns were lower when we were giving. If you look at our SA structure upto Rs 1 crore, we are giving 4% and above Rs 1 crore, we are giving 3.5%. So till recently we will be giving 4% above 1 crore deposits as well and we saw flood of money coming from the wholesale market, people moving money from liquid funds where returns dropped 2.5% to 3% to get purchase money into our SA deposits. So we tightened it and made it 3.5% in order to ensure that pure granular SA, which is up to Rs 1 crore, that is from Rs 1 lakh to Rs 1 crore, which is a main market, which is the transaction bucket of SA, which is where we want the customer transacting and growing in SA, that is the only bucket we kept 4%. It is very easy to show high growth in deposits, but you effectively land up paying disproportionately higher rates compared to what your operations are. And you want sticky customers, transacting customers, not purchase money or wholesale money showing you much higher CASA numbers than what is the true quality of what a SA deposit should be, which is the transaction account of a customer.
  6. Whether you are a theatre owner or in an airline business or in a hotel business or in a retail small business, equity capital markets have provided the capital buffer, which has flown through many of these guys in the last nine months. And with that equity capital, which came in, in very large numbers post March till December, has given a lot of corporates, even the so called best-sector corporates, a disproportionate cushion to take the shocks coming out of COVID. So the corporate sector has disproportionately benefited from the very benign capital markets over the last nine months. The same benefit has not been available for the commercial segment or the retail consumer segment, where there is no access to equity capital available to these two segments.

Discl: Invested. Not a buy / sell recommendation.


I switched out of HDFC Bank to Kotak recently. Key reasons,

  1. At par with HDFC Bank in terms of quality and trust. This is most important to me and has made me stay away from all fancy names like AU finance, Ujjivan, Yes, IDFC First, etc. I think quality of our decision in banking comes only after 3 to 4 years of investment and therefore trust is most important. HDFC and Kotak Bank offers this comfort. I also missed ICICI and Axis for the same reason and I am fine with it.

  2. Kotak is currently less penetrated versus HDFC Bank and therefore relatively higher scope for growth.

  3. Integrated financial eco system player versus HDFC Bank. Almost 35% of Kotak’s EPS is from non banking. This will provide stability of earning in short term and value unlocking in long term.

  4. Uday Kotak with 26% stake still has fairly good skin in the game. It is also evident that Mr. Uday Kotak has good leverage with current RBI and govt administration. Though this is not a material reason to invest but it helps in small way.

  5. Kotak Bank has indicated a clear shift in stance from being a cautious player to aggressive player in time to come. They have a good strategy to move from conservative to aggressive to conservative depending on economic cycles. (Attaching graph from their recent presentation made at AGM).

Last but not the least, I am a customer of both banks and I feel a drastic deterioration in HDFC Bank’s service. Kotak’s service is still good. Plus digitally Kotak is way ahead of HDFC Bank.

Let’s hope this plays out.


KMB seems to be on a roll in terms of stakes/acquisitions. Is this the sign of aggression that UK hinted :thinking: LINK


Buying 10% stake in KFIN is a v.smart move. The business of KFIN is lucrative. To get a close idea we can look at CAMS numbers, who’s RoE is 44%.

Now, Kotak can do Life insurance and AmC work via KFIN and become more cost efficient.

We can count on Kotaks management to take more such smart decisions.

Money is well utilized.

The price paid also seems like a good deal.
For 10% stake they paid 310Cr.
Whereas CAMS has a Mcap of 17K cr.


Banking industry in general and KMB in particular has been very staid in the last three years.

This is in the backdrop of one of the most ferocious bull market in last 10 years (which I personally witnessed)

Maybe street was expecting more aggression in growth, though book quality is top notch along with bigger peer HDFC Bank. Increase in slippages is very much within expectation given the COVID impact.

Good to see market favorably responding to these developments in KMB.

Disc: Invested and one of the top holdings in a conc portfolio


Two good and interesting reads on future of Banking. In my opinion, when business environment becomes tough, strong players end up benefitting. Kotak with Digital strategy in right place and overall good balance sheet coupled with low cost of funds should be able to withstand this disruption and later when cost of funds rise again (cycle change), should benefit immensely. Let’s see how it plays out.


One difference is: having access to sticky money.

Recently in an AGM the MD CEO said that all three money markets froze (CP, CD bond). nobody was willing to lend money due to uncertainty prevailing in the circumstances but they sailed through because of the good reputation they enjoy with retail depositors due to which they got plenty of CASA money, which is sticky and cheap.

The article is ignoring the fact.


IMHO the article presents situation of overall industry and not specifically of Kotak Bank.

In my view, the losers will be relatively smaller sized banks and PSBs (non SBI). Kotak / HDFC / ICICI / Axis / SBI will survive and prosper. They will get into partnerships with fintechs or acquire them. The trend is already visible… HDFC Bank today announced credit card partnership with Paytm.

Disc: Invested in Kotak Bank.


KMB continues to be in the news.

The news about Kotak Bank shows its change in the stance. My real concern is who and what after Mr Uday Kotak when his term ends. Most of the senior leaders in the Bank are veterens having spent 20+ years in the bank. What is their succession plan.
Discl: Invested and views are biased.

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