Kotak Mahindra Bank on Saturday posted a 27% year-on-year increase in its net profit for the three months ended September 30 to Rs 2,581 crore as the lender saw a 68% drop in its provisions to Rs 137 crore. The bank’s pre-provisioning operating profit grew 14% y-o-y to Rs 3,568 crore in Q2FY23 on the back of 8% growth in non-interest income.

The lender saw a significant expansion of 72 basis points (bps) in its net interest margin (NIM) to 5.17% as of September 30, which is higher than the bank’s average levels of 4.25-4.50%. Net interest income (NII) also grew 27% to Rs 5,099 crore in Q2FY23 aided by 25% y-o-y growth in advances to Rs 2.9 trillion. The lender saw broad-based growth in loans led by segments such as home, personal, credit cards, SME, tractor and agriculture. The bank has 53% loans linked to the external benchmark lending rates (EBLR) while those linked to marginal cost of funds based lending rates (MCLR) stand at 16% as of September 30.

Although the bank is showing good growth numbers, it sees inflation as a challenge for pushing growth going ahead as it will impact customers’ ability to make repayments on loans.

Also Read: IDFC First Bank Q2 net jumps 266% to Rs 556 cr

The bank’s corporate look book was flat y-o-y at Rs 65,524 crore in Q2FY23. While there is a demand for loans from corporate, it is difficult to pass on the rates in the rising interest rate scenario, Dipak Gupta, joint managing director of the bank, said in a virtual press meet, adding that there is credit substitute side to corporate lending, which includes market instruments such as NCDs or bonds. The bank’s credit substitutes improved 25% y-o-y to Rs 27,301 crore in Q2FY23. There is a demand from larger corporate for raising funds through such substitutes.

The bank saw deposit growth of 11.5% y-o-y to Rs 3.3 trillion, with current account, savings account (CASA) ratio at 56.2% as of September 30 as compared to 58.1% a year ago. While the bank can raise term deposits in the short run, it can pass on the increase in costs, which is reflected in the margin, the bank said.

Capital adequacy ratio, as per Basel III norms, stood at 22.6% as of September 30 compared to 22.8% a year ago. Although the bank carries more than it immediately requires, the bank has stepped up efforts on loan growth to use the excess capital, Jaimin Bhatt, cfo of the bank said.

On asset quality front, gross non-performing asset (NPA) ratio stood at 2.08% as of September 30 compared to 3.19% a year ago and 2.24% q-o-q and net NPA ratio was at 0.55% as against 1.06% y-o-y and 0.62% sequentially. The bank saw slippages at Rs 653 crore in Q2FY23 while recoveries and upgrades were at Rs 945 crore. Provision coverage ratio (PCR) stood at 73.7% as of September 30 as against 67.5% a year ago.