| Kotak Mahindra Bank Limited | ||||||
| Rated amount enhanced for Certificate of Deposits | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+' ratings on the debt instruments of Kotak Mahindra Bank Limited (KMBL; part of the Kotak group).
The ratings continue to reflect the Kotak group’s strong capitalisation, healthy asset quality and comfortable earnings.
The ratings also continue to factor in the order dated April 24, 2024, by the Reserve Bank of India (RBI) directing KMBL to cease and desist from (i) onboarding new customers through its online and mobile banking channels and (ii) issuing fresh credit cards. However, RBI has permitted the Bank to continue providing services to its existing customers, including its credit card customers. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the financial and business risk profiles of KMBL and its subsidiaries and associates. This is because all the entities, collectively referred to as the Kotak group, have extensive business and operational linkages, shared senior management and similar brand
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description
The Kotak group has maintained its strong capital position. Absolute networth (capital and reserves) increased to Rs 147,214 crore on September 30, 2024, as compared to Rs 129,892 crore as on March 31, 2024 (Rs 112,254 crore as on March 31, 2023). CET-1 ratio and overall CAR were healthy at 22.6% and 21.7%, respectively as on September 30, 2024; 21.8% and 20.7%, respectively as on March 31, 2024 (23.3% and 22.3%, respectively, as on March 31, 2023). Capitalisation is supported by the demonstrated ability to raise capital. Networth (capital and reserves) coverage for net non-performing assets (NPAs) remains comfortable at 64 times as on September 30, 2024 (76 times as on March 31, 2024) for the Bank on a standalone basis. Capitalisation of other fund-based Kotak group entities was also comfortable with gearing of Kotak Mahindra Prime Ltd at 2.4 times as on September 30, 20234 and Kotak Mahindra Investments Ltd at 2.7 times as on September 30, 2024 (as per Indian Accounting Standards).
CRISIL Ratings believes the Kotak group's capitalisation will continue to be backed by steady internal cash accruals and remain strong to support growth initiatives over the medium term.
The Kotak group has demonstrated its ability to maintain asset quality through cycles. The group's gross NPAs stood at 1.5% as on September 30, 2024, as against 1.4% as on March 31, 2024 (1.8% as on March 31, 2023). The reduction in NPAs in fiscal 2024 was primarily because of accelerated recovery and higher growth. The provisioning cover of the group is 70% as on September 30, 2024.
The portfolio under special mention account (SMA) 2 (Fund based outstanding for borrowers with exposure > Rs. 5 cr) is Rs. 176 crore as on September 30, 2024. Furthermore, while around 30% of the portfolio comprises corporate and business banking, and hence is chunky in nature, these exposures are largely to higher rated corporates thus reducing the risk in that portfolio. CRISIL Ratings believes the Kotak group's stringent underwriting standards, strong risk management systems and processes, and rigorous collection measures will keep asset quality healthy over the medium term. However, delinquencies could inch up due to the challenging current macro environment.
The Kotak group has comfortable earnings with return on assets (RoA) at ~2.6% for FY24 (2.6% for FY23). The annualized RoA stood at 2.4[1]% for H1FY25 as well.
The earnings profile of the Bank remains supported by healthy net interest margin (excluding other income) of 4.5% for September 30, 2024, as compared to 4.8% for fiscal 2024 (4.7% for fiscal 2023). Furthermore, with continued focus on low-cost current and savings accounts (44% share in total deposits as on September 30, 2024), the cost of funds remains competitive at 5.01% as on same date. The group's business is diversified across financial services, ensuring a healthy mix of fund- and fee-based revenue streams. CRISIL Ratings believes KMBL will continue to maintain comfortable profitability, given the high interest spreads and healthy fee income. [1] Excluding profits from sale of KGI |
Liquidity: Superior Liquidity continues to be superior, supported by sizeable retail deposit base that forms a significant part of the total deposits. The daily average liquidity coverage ratio for the quarter ended September 30, 2024, was at 135.9% against the regulatory requirement of 100% on the group level. The Bank's liquidity also benefits from access to systemic sources of funds such as the liquidity adjustment facility from the RBI, access to the call money market, and refinance limits from sources such as National Bank for Agriculture and Rural Development and Small Industries Development Bank of India
Key ESG highlights of Kotak Bank: ESG Profile CRISIL Ratings believes KMBL’s environment, social and governance (ESG) profile supports its strong credit risk profile.
The ESG profile in the banking sector is typically factors in governance as a key differentiator between individual banks. The sector has a reasonable social impact because of its nationwide presence, substantial employee and customer base, and it can play a key role in promoting financial inclusion. While the sector does not have direct adverse environmental impact, the lending decisions may have a bearing on the environment.
KMBL has ongoing focus on strengthening various aspects of its ESG profile.
KMBL’s key ESG highlights:
There is growing importance of ESG among investors and lenders. KMBL’s commitment to ESG will play a key role in enhancing stakeholder confidence, given high share of foreign institutional investors as well as access to both domestic and foreign capital markets. |
Outlook: Stable CRISIL Ratings believes the Kotak group should continue to report steady growth in its lending business, while maintaining healthy asset quality and strong capitalisation, over the medium term. Earnings will continue to benefit from a diversified business risk profile. |
Rating sensitivity factors Downward factors
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About the Group KMBL is the flagship company of the Kotak group and has diversified operations covering commercial vehicle financing, consumer loans, corporate finance and asset reconstruction. Through its subsidiaries, the Bank is engaged in investment banking, equity broking, securities-based lending and car finance. KMBL was reconstituted as a commercial bank from a non-banking financial company (NBFC) in fiscal 2003 to provide a more comprehensive range of financial services. Effective April 1, 2015, ING Vysya Bank was merged with KMBL and the integration process has been completed.
Other than KMBL, the key operating companies of the Kotak group are Kotak Mahindra Prime Ltd (car financing), Kotak Mahindra Capital Company (investment banking), Kotak Securities Ltd (retail and institutional equities broking, and portfolio management services), Kotak Mahindra Investments Ltd (commercial real estate lending) and Kotak Alternate Asset Managers Ltd (alternate assets space). The group also operates in the life insurance business through Kotak Mahindra Life Insurance Company Ltd and has an associate [Zurich Kotak General Insurance Ltd (formerly known as Kotak Mahindra General Insurance Ltd)] through which it carries the general insurance business. It is also present in the asset management business through Kotak Mahindra AMC and Trustee Company Ltd, and in the infrastructure financing space through Kotak Infrastructure Debt Fund.
The Bank sold 70% stake in Kotak General Insurance to Zurich Insurance for a consideration of Rs 5,560 crore. Post receiving necessary approvals the transaction was completed in June 2024.
Additionally, the Bank is in the process of acquiring Standard Chartered Bank, India’s personal loan book for a consideration of Rs 4,100 crore. The Bank completed acquisition of Sonata Finance Private Limited as a wholly owned subsidiary effective March 28, 2024, for a purchase consideration of Rs 537 crore.
The Kotak group's profit after tax (PAT) was Rs 9,479 crore (excluding Rs 3,013 crore from sale of KGI) on a total income (net of interest expenses) of Rs 38,012 crore for first half of fiscal 2025 against PAT of Rs 18,213 crore on total income (net of interest expenses) of Rs 71,706 crore for fiscal 2024.
KMBL reported PAT of Rs 6,864 crore (excluding Rs 2,730 crore from sale of KGI) on a total income (net of interest expenses) of Rs 19,475 crore for first half of fiscal 2025 against Rs 13,782 crore on total income (net of interest expenses) of Rs 36,267 crore for fiscal 2024. |
Key Financial Indicators
*as per CRISIL Ratings calculation # excluding profits from sale of KGI | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
# Yet to be issued |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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