Kotak Mahindra Bank expects its net interest margin (NIM) to improve in the coming quarters, supported by the reduction in interest rates on savings accounts and the growth in the share of current account deposits, said Devang Gheewalla, group chief financial officer, during an analyst call.
After showing a declining trend in the previous three quarters, the NIM of the private lender appears to be stablising. It has expanded to 4.93% in the third quarter, from 4.91% in the second quarter, of the current financial year.
“As the share of the unsecured business grows, and once we are comfortable with the credit quality, it will obviously add to the yield on the earning asset,” said Gheewalla. “As far as cost of fund is concerned, the cut in the SA (savings account) rate is helping us. And as the share of current account deposits, which we grew nicely during this quarter, continues, margins will continue to remain or improve from here on.”
Kotak Mahindra Bank in October announced to cut the interest rate for savings accounts with balances of below Rs 5 lakh. The private lender implemented a 50-basis-point reduction in the savings account interest rate, bringing it down from 3.5% to 3%. The lender made this decision at a time when the banking sector was experiencing a contraction in NIMs. To address the sluggish deposit growth, banks have increased term deposit rates to attract depositors. However, the rise in term deposit rates has put pressure on banks’ NIMs.
While the bank has started to see slippages in personal loans decline, it does not expect any easing of stress in microfinance loans in the next couple of quarters. “We will have to be watchful in terms of slippages going forward. But as we see today, the slippage on personal loan is tapering down. Credit card has plateaued, remaining at the same level,” said Gheewalla. “We will have to be watchful and I remain cautiously optimistic.”
Fresh slippages declined to Rs 1,657 crore in the third quarter, from Rs 1,875 crore in Q2. The lender improved its asset quality as its gross non-performing assets stood at 1.5% in Q3FY25, compared with 1.73% in the same quarter last year.