Shares of Kotak Mahindra Bank Ltd. dropped after investors expressed concerns over the level of bad loans held by India’s third-largest lender by market value.
The bank’s gross bad loan ratio narrowed to 2.26% at the end of December from 2.55% three months earlier, but this ratio would have been 3.27% if India’s court hadn’t barred financiers from marking soured assets, it said in a filing on Monday. A “disproportionate portion” of the additional problem loans, including those that haven’t been marked as bad debt, are in unsecured consumer retail, it said.
Shares dropped as much as 2.9%, the most in almost two months, after the results were published. The Bankex Index fell as much as 0.6%.
“Bad loans, including those that haven’t been labeled due to a court order, have caught investors by surprise,” said Pritesh Bumb, an analyst at Prabhudas Lilladher Pvt. “Higher non-performing assets than some peers is leading to the stock market reaction.”
Kotak Mahindra, backed by world’s richest banker Uday Kotak, has been impacted after a nationwide lockdown to contain the coronavirus pandemic forced businesses to close, impacting demand for credit and borrowers’ ability to repay. India’s central bank expects banks’ bad-loan ratios to almost double this year.
Read about how world’s richest banker made $16 billion after a brush with death
Net income totaled 18.5 billion rupees ($254 million) for the three months ended Dec. 31, compared with 16 billion rupees a year earlier, the Mumbai-based bank said. Analysts had expected a profit of 17 billion rupees, according to the data compiled by Bloomberg.
|Income on investments 18.0 billion rupees versus 13.2 billion rupees year earlier|
|Capital adequacy ratio at 21.54% compared to 18.2% in the previous year|
|Provisions at 6 billion rupees versus 4.4 billion rupees a year earlier|
Earlier this month, HDFC Bank Ltd., India’s largest private lender by assets, said its gross non-performing asset ratio would have been 1.38% without the relaxation of rules regarding the recognition for bad debt.
(Recasts lead, updates with details throughout)