Kotak Mahindra Bank (KMB) is now in the final stages of fully integrating the operations of e-IVB (erstwhile ING Vysya Bank) with itself with the final pieces of technology and organisational structure to be integrated by April/May 2016, in addition to ongoing rationalisation of branches. For the combined entity, loan growth stood at 4% QoQ driven by 5% QoQ growth in retail advances, 4% QoQ growth in corporate advances while agri advances declined 2% QoQ. Management has been cautious to grow the agri book, given the rural slowdown. Margins remained stable QoQ at 4.3% versus earlier standalone KMB margins of 4.7% as synergies are yet to kick in. However, synergies have started to manifest with the increased momentum in SA (savings deposits), growing 31% YoY in e-IVB branches and 41% YoY in KMB branches.
Similarly, traction is also building up in cross-selling fee products to e-IVB customers. On the cost front, KMB has been able to control costs quite well, in line with NII expansion. On the asset quality front, there have been no negative surprises beyond the c6% of e-IVB loans that KMB management had recognised as stressed in 1Q. Unlike the rising asset quality stress in the sector, GNPLs have remained stable at 2.35% and management did not resort to strategic debt restructuring or 5/25 refinance in the third quarter.
Management sounded cautious on growth, given the rising global and domestic stresses in the past few months. We continue to expect KMB to deliver an earnings CAGR of over 40% and RoA to improve to 1.75% by FY18e.