Loans – Kotak Mahindra shares drop after bad loans catch investors by surprise
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 labelled 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.
Net income totalled ₹1,850 crore ($254 million) for the three months ended Dec. 31, compared with ₹1,600 crore a year earlier, the Mumbai-based bank said. Analysts had expected a profit of ₹1,700 crore, according to the data compiled by Bloomberg.
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.