Kotak Mahindra Bank Limited (KOTAKBANK) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Kotak Mahindra Bank Limited due to FY27 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashok Vaswani, Managing Director and CEO of Kotak Mahindra Bank Ltd. Thank you, and over to you, sir.

Thank you, Dorwin. Good afternoon, everyone, and thank you for joining us this afternoon. I will, as usual, begin with some opening remarks before handing over to Devang and will take you through the financial performance. Anup and Paritosh will cover the retail and institutional businesses, respectively, and Jaideep will provide an update on our subsidiary performance. For the quarter, the group delivered 5,645 crores in profit-after-tax, a growth of 26% year-on-year. Let me first talk about the bank and then move to the subsidiaries. The bank delivered profit upper tax of 4,212 crores, up 29% year on year. This quarter's performance demonstrates that our strategy is translating into results. We are seeing encouraging traction across our focus customer segments, independent product businesses, while our investments in technology are clearly paying off. In terms of balance sheet, our total average deposits grew 19% year-on-year. Within this, our CA and fixed-rate SA books grew at 17% year-on-year and 14% year-on-year, respectively. Excluding FCNR deposits on an end-of-period basis, deposits grew by 13% year-on-year, and CASA would have stood at 41.8%, up from 40.3% sequentially. Let me spend a couple of moments on the FCNR-B program. We believe that the FCNR-B program is a one-off opportunity. We have raised $5.78 billion or Rs. 55,000 crores through the program, significantly ahead of what our deposit market share would ordinarily imply. This amounts to as much as 9.7% of the June deposit base. These inflows have supported our objective of increasing the tenor and stability of our deposit franchise by adding longer duration and fixed-rate funding to the balance sheet. During the quarter, we use part of the proceeds to fund the acquisition of Kotak Mahindra's investment loan portfolio, run down relatively high-cost deposits, and reduce dependency on IBPC borrowings. Strategically, we are managing the timing of the deployment of these deposits into customer assets to build the franchise and take advantage of the increasing rate cycle. We expect to deploy the remaining funds over the next few quarters. Net advances grew 25% year-on-year, which includes 16,000 crores of loans against FCNRB deposits and a transferred loan portfolio of around 9,600 crores from Kotak-Mendra investment. Excluding both of these, our core net advances grew 19% year-on-year in line with our philosophy of growing our advances at 1.5 to 2 times normal GDP growth. In the unsecured retail segment, as we have been saying, we have continued to grow in absolute terms, with sequential growth now visible in personal loans, business loans, credit cards, and retail microcredit, i.e. across the board. Further, the benefits of our strong underwriting disciplines and enhanced collections capabilities are continuing to come through. This is reflected in credit costs, which improved to 35 basis points in Q2 FY27 from 46 basis points in Q1 FY27. On costs, the underlying growth remained broadly flat sequentially, adjusting for the FCNRB impact. We continue to see the benefits of our focus on cost discipline, with cost to assets declining steadily over the last six quarters to 2.4% in Q2. Let me now turn to our subsidies. Quarter-end volatility in equity and bond markets impacted investment income across subsidiaries. However, poor operating performance remained healthy, with investment banking delivering a very strong quarter, driven by a rebound in primary market activity and a robust pipeline, maintaining its prime leadership position. The strong domestic inflow supported the asset management and alternate asset businesses. With this, the subsidiaries contributed 26% of consolidated profit after tax. Reflecting the strength of the overall franchise, consolidated book value per share increased by 16% year on year. To conclude, we are encouraged by the progress across the customer franchise. Advances have grown in line with our stated philosophy, while our liability franchise continues to strengthen. The one-quarter approach has helped us deepen customer relationships. Credit costs have been bought under control, and technology is driving greater productivity. We are confident in our ability to deliver responsible and profitable growth. With that, let me hand it over to Devang to take you through the financials in greater detail.

Thank you, Ashok, and good afternoon, everyone. Let me first take you through the key highlights of bank's standalone performance. Bank's balance sheet grew 25% YOY, and the total balance sheet size at 30th September is now almost 9 lakh crores. Profit before tax for Q2 was 5579 crore, which grew by 29% YOY and 2% on a QOQ, driven strongly by the growth in NII of 16% YOY, non-interest income grew 23% YOY, sustained improvement in cost-to-income ratio from 2.67 in Q2 F526 to 2.4 in Q2 F527. Continued improvement in credit costs from 0.79 in Q226 to 0.35 in Q227. The operating profit also grew by 21% YOY and 4% on a QOQ basis. Our advances grew 25% YOY and 13% QOQ basis, excluding loans provided by international branches of the bank against FCNRP deposits and the loan portfolio acquired from Hotak Mahindra Investment Limited. Advances grew by 19% YOY and 8% on a QOQ basis. Advances growth in Q2 F527 was across all business segments, primarily driven by SME, which was supported by the ECLGS scheme, corporate banking, and retail banking. Our unsecured retail advances share is 8.1% and in absolute term, the portfolio grew by 1,730 crores as against 707 crore in Q1 of F527. The growth mainly came in MFI, credit card, and personal loan and business loan segment. This quarter also saw good traction in our commercial vehicle and construction equipment business. During the quarter, there was a net reduction in the IDPC borrowing by 9,800 crore, utilizing the proceeds from the SCNRB mobilization. Coming to the deposits, our total deposits grew 23% YOY and 14% QOQ on an end-of-period basis, while the average deposits grew 19% YOY and 8% on a quarter-on-quarter basis. Deposit performance was mainly driven by strong growth in granular retail current account balances and term deposits. Within deposits, current account grew 17% YOY on average basis and fixed rates SA grew 14% YOY on average basis. Excluding FCNRB deposits, regular term deposits grew by 15% YOY on average basis. Further, we repaid high cost certificate of deposits during the quarter. CASA ratio excluding FCNRB deposit was 41.8% as against 40.3% on June 30th. Friends, while the FCNR program is a one-off opportunity, let me highlight the financial implication on the Q2 results. As Ashok mentioned, we mobilized 55,344 crore in deposits, which is almost 9.7% of our June total deposit base, and we gave loans of 16,100 crore, which is This deposit is about 3.1% of our net advances at June 38th in FCNR deposits. These deposits were deployed towards funding acquisition of KMIR loan, which is about 8,900 crores, and net repayment of IBPC amounting to 9,800 crores. Strategically, we will use this deposit to fund customer asset growth over the next few quarters, taking advantage of the higher interest rate cycle. Net interest margin for the quarter was 4.31%, a drop of 22 BIFs on sequential basis. FCNRB deposits and related advances contributed 15 BIFs to this drop. The balance drop was due to Cotter-specific day count variation which is consistent with the pattern observed in prior periods and repayment of IBPC. The underlying core margin broadly remains same as Cotter-1 which is also reflected in the NII growth of 16%. Going forward, NIMH will reflect full quarter impact of FCNRB mobilization, which will be offset by progressive deployment of FCNRB deposits in customer assets and repo rate transmission on floating rate advances. Cost of fund for Q2 FY27 was 4.52%, which included impact of increase in share of term deposit on account of SCNRB mobilization. Our cost of fund continues to remain one of the lowest among large peers. Non-interest income for quarter two grew 23% worldwide, excluding processing fee on the advances against SCNRB deposits. Non-interest income grew by 17% worldwide. Growth in this non-interest income was mainly driven by higher effects gains, traction in debt capital market syndication fees, and fees from higher disbursements across businesses. Q1 F527 non-interest income included dividend income from subsidiaries of 570 crores. Our cost to asset for the quarter was at 2.4 percent, down from 2.66 in Q1 27. The operating expenses grew by 14 percent YOY and 3 percent on a QOQ basis. Excluding one-time cost relating to borrowing by the bank's international branches, total operating expense grew by 11% YOY and flat on a QOQ basis. We continue to invest in our brand and technology. Cost-to-income was at 45.2%, a YOY reduction of 160 bps. We continue to see improvement across all asset quality parameters, with gross NPA declining to 1.04 from 1.18 in the previous quarter, net NPA improving to 0.24 compared to 0.27, and provision coverage ratio remaining above 78%. Credit cost for the quarter, 35 bps, compared to 46 bps in quarter 1, while slippage ratio declined to 0.85 from 1.03 sequential quarters. The unsecured portfolio continues to show improvement in credit costs, and delinquencies in retail series have stabilized. As of September 30th, the bank's net worth is at 1,45,984 crores, which includes 10,958 crores of MTM gain on select investments accounted through the AFS reserve, which has not been routed through the profit and loss account. The ROE for the bank is 11.65% for the quarter. Adjusting for this non-cash AFS reserve, the ROE improves to 12.55%. Our capital adequacy of the bank is 21.9%, of which CET1 is 21.4%. Return on assets for Q2 is 1.92 with average balance sheet growth of about 26% and was higher by 4 BIPs on a YOY basis. This quarter, FCNRB mobilization has provided a significant liquidity which will be deployed in customer assets over next few quarters, taking advantage of the increasing interest rate environment. The core performance of the bank continues to improve with balance sheet growth, volume-led non-interest income growth, sustained cost discipline, and continued improvement in credit cost. Moving to the consolidated business, customer assets stood at 6,99,250 crores, a growth of about 21% on a wire-to-wire basis. The group investment AUM increased to 8,14,118 crores and increase of 8% on a worldwide basis. The consolidated network of the group is now 1,94,706 crores with the book value per share increased to 196 rupees with a 6-year target of 16%. Consolidated path for the quarter is 5,645 course, which grew 26% YOY and 3% on a quarter-on-quarter basis. Q2FI27 Consolidated Path was impacted by market-led MTM volatility across the subsidiaries. However, underlying performance remains strong. Jaydeep will take you through the performance of the key subsidiaries in detail. With that, I hand over to Anup to discuss the highlights of our retail businesses. Thank you, Devon.

Our retail strategy remains anchored on two focus segments, the affluent and private banking India as the core India. Private banking and affluent India continues to grow very nicely. Our solitaire premium proposition continues to deliver strong outcome. As of 30th September, the bank managed a combined relationship value of 13.6 lakh crore across 90,000 plus families. KOTOK 811, the cornerstone of Core India's strategy of ours, is now much wider, much bigger. It's a scalable digital platform, which is driving customer acquisition through their digital strategy of 811 and is also being used as a platform for engagement and acquisition of customers at branches, our sales channels, and our corporate salary relationships. This differentiated proposition for mass affluent has strengthened our customer engagement, resulting at 34% YOI growth in savings balances, and this now contributes to 13.3% of total savings. Our deep conviction around Core India strategy and our payment strategy has led to significant benefit for us in the changing MDR on UPI. As of 2026, our UPI issuer market share stood at 3.8% ahead of our deposit market share. Further, 13.3% of Kotak's UPI remitter transactions by volumes are routed through our mobile applications, underscoring preference of our digital ecosystem. In a way, we are possibly only one of the few banks who have a very strong payment strategy. It is the success of this two segments that is reflected in the momentum of our liability franchise. Our CASA stood at 41.8, up from 40.3. In terms of the numbers, we already, Devang spoke about. I am going to skip the FCNR since Devang has already discussed about that. Moving to the asset side, mortgage lending, comprising of home loan, loan against property, and affordable housing. We are building long-term relationships with our affluent and self-employed customers and also driving deposit mobilization through the relationship value. Our distribution, better digital journeys, a mortgage portfolio grew at 14% and 4% Q on Q. We also launched our hybrid home loan on a timely basis, and this has generated strong customer interest. However, at an overall base, our portfolio continues to remain mostly floating. Our gold loan book, while still relatively small, continues to grow strongly, aided by significant automation of process, which we have now delivered. The unsecured portfolio, Devang spoke about it, between personal loan, business loan, credit cards, retail microcredit. We are seeing good growth, and credit costs have normalized. However, we continue to remain focused on our risk metric, which is within our risk appetite. Personal loan business, business loan grew 9% YOY, 4% Q&Q. This is further strengthened by our offerings for personal loan and business loan of both term loans and overdraft products to our solitaire and high net worth customers as well, in addition to mass affluent. Credit card business, which we earlier spoke about that we distract the business in terms of right product and to right customers, as of September 2026, grew 8.9% YOY and 8.3% quarter on quarter. While portfolio grew 7% YOY and 4% quarter and quarter. The solitaire credit card has seen strong acceptance, very high brand recall, and demand for the customers who bank with us. And our spends there is growing very nicely. Retail microcredit grew about 18% YOY, 5% QOQ, supported by risk underwriting and the portfolio being covered under credit guarantee schemes. In tractor loans, we maintain our position as a large financer within the play, delivered 11% YOY and 3% QOQ, while we remain watchful of the potential El Nino-related risk. This is a business we have built over the last two decades, and we have a strong domain understanding of this business, and are present across major geographies of India. This is a product tractor, which is largely bought by the small and marginal farmers of India, who are the backbone of our country's agriculture economy. The collection efficiency in tractors has improved significantly. While we are seeing no visible impact on delinquency as on Q2-FI-27, we remain very watchful of the evolving weather conditions. You know, all of us know the rainfall deficit for this monsoon season has been about 13%. With that, I will hand it over to Paritosh to take you through the next section.

Thank you, Anuj. I will now take you to the performance of the institutional businesses. Our institutional and SME proposition continues to drive growth while leveraging the group's diversified financial services platform. Across these businesses, our focus is on deepening customer relationships, meeting customer needs holistically, and increasing our share of wallets to improve returns. On the asset side, growth was broad-based across sectors and customer segments in the corporate bank, with the loan book growing by 25% YOY and 15% quarter-on-quarter. Credit substitutes grew 44% YOY and 2% quarter-on-quarter. On a combined assets basis, the corporate bank and credit substitutes' growth was 29% YOY and 11% QQ. Adjusting for the KMIL transferred book, the corporate banking loan book grew 17% YOY and 7% QQ. Trade and supply chain finance grew strongly as we have invested in automation to serve our corporate customers and their ecosystem of vendors, dealers, and supply chain partners. GiveCity remains an important strategic driver to meet the global banking needs of our customers, including loans, trade finance, acquisition, financing, security services, deposits, and investment. Alongside asset growth, we are focused on widening engagement across liabilities, Transaction banking and other income streams. This balanced mix of assets, liabilities, and fees is reflected in our healthy ROE in this business. This quarter, fees across trade, foreign exchange, and debt syndication grew strongly. Corporate bank fee income grew 36% YOY and contributed 20% of bank's total fee income. Corporate liabilities grew driven by granular acquisitions, tax and trade flows, collection and payment services, and capital market deals. Our investment in digital capabilities is paying off with 5x YOY growth in acquiring UPI and a 300 basis point improvement in Nash market share. Let me move to capital market businesses. Our institutional capital market businesses performed strongly, driven by a rebound in tri-money markets and momentum across investment banking and institutional equities. These businesses enabled us to serve corporate customers through several marquee transactions, including IPOs, block trades, and advisory mandates. Investment banking had a strong quarter across ECM and advisory and has a strong pipeline too. Institutional equities maintained its leadership position with global and domestic institutional investors. Cross-selling investment banking and institutional brokerage products added about 109 basis points to corporate banking ROE. Custody balances remained impacted by muted FII flows, although domestic traction was good. Let me now move to SME business. Our relationship-led SME franchise delivered healthy growth, which advances growing 27% YOY and 10% quarter-on-quarter to about 1.4 lakh crore, and now accounting for 24% of banks' advances. As its quality remained resilient, we have been an active participant in the government's ECLGS program and have sanctioned Rs. 11,200 crore of ECLGS credit. SME remains a strategic priority for the bank. We see opportunities to expand primary banking relationships across both enterprise and personal banking, including private banking, affluent, retail, and corporate salary franchise. Agri SME, business banking, and corporate SME have been integrated to achieve improvement in productivity, standardization, automation, and customer journeys. We continue to invest in distribution, customer acquisition, digital capabilities, and relationship management, and see significant opportunities for growth while maintaining portfolio quality. Let me turn to our CVCE business. We are stepping up growth while maintaining disciplined underwriting, ensuring strong collection practices, and risk-adjusted return. In CVC, advances grew 8% YOY and 4% quarter-on-quarter to over Rs.47,000 crore and account for 8% of banks' advances. Let me now move to technology investments in the wholesale and institutional businesses. Across the franchise, the investment in technology continues to improve client experience and operational efficiency. Fin, our integrated corporate portal saw a 34% YOY increase in corporate onboarding and about 60% increase in active customer base as more services become available on the platform. Digital adoption of working capital drawdowns and customer service DIY journeys have increased substantially. I will now hand over to Jaydeep to take us through the subsidiary's performance.

Thank you, Faritosh. Let me now take you through the performance of our subsidiaries. In Q2FI27, our subsidiaries reported profit of 1450 crores, up 18% YOY, contributing to 26% of our console profits. The Q2 PAT was impacted by negative MTM on capital market linked equity investments and movement in yields and our interest-bearing debt investments. However, underlying performance remains strong. As I have mentioned in the past, one of Kotec's unique strengths is our ability to manufacture and distribute all major financial products through a single platform. With 100% ownership across our subsidiaries, we retain the full profit and embedded value created across the group. I'll start with the lending subsidiary Kotec Prime. Pat for second quarter 27 stood at 251 crores, up 2% YOY. The business continues to benefit from healthy growth of 12% in customer assets to Rs. 47,458 crore while maintaining a disciplined approach towards portfolio quality. On capital markets, a key development was the rebranding of our retail broking business as Kotak NIO, a unified customer-facing brand for retail investing, trading, and wealth management within the legal entity Kotak Securities lifted. Quoted Securities saw Q2-FI27 pact of $348 crores versus $345 crores in Q2 last year, mainly due to higher brokerage income being offset by increase in technology spending and negative MTM and equity investments. Quoted NIO maintained strong traction in Q2-FI27 with account acquisitions up 38% YOY. Bank-referred acquisitions grew 41% YOY and contributed to 59% of total acquisitions. Led by our mobile banking platform, reflecting the effectiveness of our digital distribution strategy in one-quoted collaboration. The overall market share of Quoted Securities stood at 13.2%. Interest income also benefited from growth in the MTF book, with a steady market share of about 14%. On the institutional side, Quoted Institutional Equities continues to be a leading broker for the largest global and domestic institutional investors. Our investment banking business, Quotamander Capital Company, also had a strong quarter with improving deal momentum and sustained interest from both strategic buyers and financial sponsors. As part of our one-quarter strategy, KIE continues to deepen its collaboration with KMCC, our investment banking business, to distribute 13 IPO-stroke QIPs worth US$6.6 billion. KRI also executed 14 ECM blocks worth USD $1.6 billion. On the asset management business, the Kodak AMC and trustee companies patch for Q2FI27 stood at $287 crore, up 11% YOY. This was on the back of average AUM growth of 12% YOY, which stood at Rs 6,35,421 crore. The scale of this business continues to deliver steady profitability through the cycle, in line with AEM growth and supporting margins. On alternate assets, Kotak alternate asset managers continues to be one of India's leading domestic alternate asset managers, having raised over US$11.8 billion since inception. Given the non-linear nature of the business, performance is best assessed over longer periods rather than quarter to quarter. On the insurance side, Kodak Life Insurance shareholders' pact stood at 198 Cron. The year-on-year profits was a whopping 300%, but it should not be compared as there was a one-time GST-related impact in Q2 of F526, excluding which the company continues to deliver steady profit growth. Gross written premium grew 21% YOY, while retail sum assured increased 23% YOY. AUM as a life insurance business grew to 1.12 lakh crore, up 14% YOY, underscoring the strength of our long-term savings franchise. I will now request the operator to begin the Q&A session.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to limit their questions to two questions per participant and to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Kunal Shah with Citi. Please go ahead.

Yeah, thanks, Tim, for such a detailed disclosure on FCNR, not only on the balance sheet side, but at various line items of P&L as well.

Just want to understand in terms of the P&L implication for KMIL.

So, KMIL, is it only at the balance sheet level or there was some income booking because, again, in the consolidated numbers, we have shown the profit of KMIL separately. So I want to understand the implications, the detailed implications of KML in P&L. And the second question is on FCNR deployment. You indicated that largely it's towards the borrowings of KML as well as in running down the IBPC and not much into the customer assets as such. So then do we assume that maybe there should be a much better growth attraction going forward as this excess liquidity gets utilized? Because out of 55, only in 19-20 would have been utilized towards it. So there is a good chunk which is left to be deployed. And that should push the overall growth momentum further compared to what we saw in the first half.

Hi, Kudal. Vivang here. So to answer your question on KMIL, as you know, the KMIL loan transfer was a part of the regulatory requirement. So we transferred in the beginning of the quarter most of the eligible loans to the bank. So, the loans which got transferred in the first month of the quarter have started, obviously, earning the required NII, and that is included in the Q2 performance. So, that loan income is already started booking in. Now, for the loan, obviously, bank paid the KMIL, and KMIL also had a net worth. So, combined with the net worth and the amount which is received on that, the KMIL obviously has deployed it in investments, which is earning and which is reflected in the PBT of the KMIL. KMIL obviously also has liabilities which will be repaid as it matures as a part of this funding which we've got. But KMIL of course also has a standard provision release which has happened. So the P&L of the KMIL what you see because the loans got transferred from the KMIL to the bank, the standard provision created on the KMIL books got released. And obviously, it got booked in the bank, which we have disclosed, I think, in the EU, which is there. So, that's on the KML part of it.

Sorry, just one thing, just one part sort of follow-up on this. So, when we look at it, the interest income component would be higher because you said like KML borrowings were repaid through FCNR. So, should I assume that interest expense would be relatively lower on KML book or maybe we need to work with slightly higher spread compared to the bank spread to indicate in terms of how much could be the NIA impact for KML? So, just assuming maybe 8,900 crores, we need to consider it to be like 6-7% spread on it, or maybe we have to take it on yield, assuming that there is no interest liability.

Kunal, let me try and clarify this very clearly. First week of July, KMIL's assets were transferred to the bank. Okay? When KMIL's assets were transferred to the bank, the funding of those assets would have come from the FCNR deposit. So, in terms of deployment of the 55,000, Devang mentioned about 9,600 went to fund the KMIL assets. Interest on those KMIL assets in the bank was accrued. Expenses were obviously there, and then there was a standard provision. Now, when you go to KMIL as the subsidiary, obviously the assets went out. They got a bunch of cash. That cash was invested, consistent with the risk appetite of that legal entity. And the profits that are shown in KMIL is those kind of profits, plus reversal of standard provision in KMIL. Is that correct?

Perfect. Yeah.

So there would be some overlap between KMIL credit cost and maybe the reported numbers out there in KMIL. No, no, no, no. There is no overlap.

KMIL standard provision was released.

And here we booked it. Okay, got it. At consolidated level, no impact. Perfect. Correct.

Exactly correct. Consolidated level, there is a higher impact because on real estate lending, which KML used to do, there was a lower provision in an NBFC, while once it comes to bank, the provision is higher. Perfect. There is a 1% standard asset provision in the bank, while in the NBFC, it was only 0.4%.

Perfect. That helps. Yeah. So the only thing was NII growth sequentially on core basis would have been closer to 4 odd percent compared to 6.7%.

Well, KML is 9600,000. For one quarter, it is minimalistic. It is minimalistic. Agreed.

Agreed. Perfect. Yeah, that helps.

FCNR deployment. Yeah. What is your question on FCNR deployment?

So, largely, maybe you mentioned like FCNR deployment was more towards KML, and it was towards the IBPC rundown. So, we have not yet deployed entirely into customer assets. So, maybe in terms of the growth outlook, should we expect much better growth momentum because almost like 25, 30 or 1,000 crores of FCNR would still have to be deployed into the lending ecosystem and across what verticals we would look at it. Yeah. Thanks.

So, Kudal, see, besides the FCNR inflow and the liquidity, you see the core liquidity and the deposit is also growing, right? So the FCNR deployment will be in addition to the core deployment from the core deposit. So that is first, right? And I think, as I mentioned, clearly that liquidity, which is not yet deployed, will be deployed over the next few quarters to take advantage of the rate cycle and the tenure and the segment, which we would like to focus going forward. So, to that extent, yes, FCRL liquidity is in addition to the core growth of the bank, which will reflect going forward.

Perfect. Got it. Okay.

Thanks. Thanks. Yeah.

That answers the question. Yeah.

Thank you. Our next question comes from the line of Nitin Agarwal with Motilal Oswal. Please go ahead.

Yeah, hi. Congrats on good results, and thanks for the opportunity. I have two questions. One is on the FCNRB deposits. We have mobilized very good quantum of deposits and all at a very low level of leverage loans, and probably the lowest among the large banks. But the bank isn't really, like, as much appreciated for the NR franchise or mix of overseas assets. So I was just curious to know what has supported this strong mobilization for the bank. Any color around that?

Yeah, so, Nathan, first of all, thank you. Appreciate it. You know, one of the things that I've been kind of talking about continuously is the key pillar of automation, digitization, and customer journey automation. And we've kind of been doing it across the bank, and that's benefited volumes across the bank, but we've also been doing it quite significantly for the NR business. And one of the reasons that we've actually been able to get 12 partners across the Middle East and South Asia signed up is because the process that we put into place and made it really easy for the banks to kind of work with us has really helped us get this disproportionately high market share.

Right. And the other question is on the unsecured assets. Now that we are seeing some traction across all the unsecured segments, so any number or outlook in terms of how will we want this mix to shape up, what kind of growth rate we are looking at? Will it continue to grow higher than the overall loan book?

I think your point is right. We have started seeing between personal loan, business loan, microcredit, and credit cards. The credit costs are now within the risk appetite of what we feel comfortable. Listen, we don't want to make it very high growth. We don't want to make it very low growth. I think the strength of the franchise is very strong. We are providing the products to a lot of our existing customers so that we get the rightful customer segment, but also at a lower cost. So I think that's the core focus around this segment, and our relative market share is very small. So we do have opportunity to grow this.

Right. And lastly, on the CV and CE business also, we did experience some asset quality issues in that segment in the past, And we are now going in a more measured way. So how are you looking at the credit environment in this particular segment? And will we look to, like, grow at a more calibrated pace? Or how is the approach that we all want to take here?

Yeah, hi, this is Paritosh. So CDC business in Q1, we were measured considering the impacts of war and we were really trying to watch. But we are seeing over the last couple of quarters, the default rates have been coming down. Our collection efficiency is improving. And that is the reason it gives us, and we have really also invested substantially on collection infrastructure in those businesses. And hence, this remains a priority for the bank, and we continue to build this business further.

Got that. Thank you. Thanks, everyone, for answering the questions. Thanks.

Thank you. Ladies and gentlemen, in order that the management is able to address questions from all participants in the queue, you are requested to please limit yourselves to two questions only. If you have further questions, you may rejoin the queue. Our next question comes from the line of Piran Engineer with CITIC International. Please go ahead.

Yeah, hi, and thanks for taking my question. Just firstly, going back to the KMIL thing. Now, KMIL will still be servicing the loan, right? It's just on our book, but they are the interface for the customer. Or are we absorbing those employees?

Let me try and clarify this thing. There was a former business circular issued by the Reserve Bank of India, where they said that you can't do the same business in multiple legal entities. As a result of that, we have said all activities will be done in the bank, and therefore KMIL has transferred, one-time transfer of all the assets to the bank. KMI currently is in the process of repaying its liabilities, and whatever capital is left, we will deal with it over a period of time, right? So, there is no question of, so KMI will not be an operating entity going forward.

So, as of now, all the loans have already been transferred, people have been transferred, servicing is being done by the bank.

Okay, okay, that's clear. And secondly, I think I heard you say that 20% of the C income this time came from corporate banking. What was it last quarter and the same quarter last year?

Okay, maybe we'll just pick the number and respond in a couple of minutes. Meanwhile, we can continue with the question. Thanks.

Perfect. No, that's it from my end.

Yeah, thanks and all the best.

Thank you. So, we'll proceed to the next question. The participant has moved on from the queue. Our next question comes from the line of Chintan from Autonomous. Please, go ahead.

Hi, good afternoon, and thank you for taking my question. Can I come back on KMIL again? Sorry, just on the NII, I want to confirm. In the NII, you only have interest income from KMIL. You don't have any interest expenses.

Yes, only interest income, as Ashok mentioned, the interest income on the loan which got transferred from KMIL to the bank for this quarter got booked in the bank. So that is the NII income on those loans have reflected in the bank. But as Ashok mentioned, it's only 9,600 floor, which is less than 2% of the total size of the bank loan book. It doesn't have a significant impact. But yes, the NII or interest income on those loans is booked in the bank.

And KMIL got the money from the bank. And because KMIL got the money from the bank, it invested that money and therefore has an interest earning, but no interest expense.

No, okay, understood that. Thank you so much on that. Just to clarify, and then separately, KMIL has been taken over at the same yields that were in the KMIL disclosures, right? Because if there's a fair amount of adjustment, just wondering if the yields were screwed up or something. Is it similar, 11% yield?

When you say yield means what?

The assets have just moved from PMIL to the bank. Everything is the same in the bank.

Nothing changes. It is an assignment of loan from one entity to the other entity. As far as customer is concerned, the loan contract remains as is.

Got it. Okay. Thank you. And then finally on the deployment strategy, you know, at the The moment that the money is sitting as liquidity, could you just enlighten us as to what kind of news do you make or spreads do you make when it is sitting as liquidity? Are you making like OIS or are you kind of investing in six-month bonds or how are you parking this liquidity so we understand how much the NIR improvement could be in the following quarter?

Yeah, so look, that is actually part of our treasury operation and treasury kind of strategy. You know, we're not going to get into a lot of detail as to what our treasury folks do, but as Devang pointed out, that over the coming quarters, as these funds are deployed into customer assets to build a franchise, yes, there will be some improvement and NIMP pickup.

Okay. Thank you. Okay. Thank you. Good day.

Thank you.

Thank you.

Our next question comes from the line of Sumit Kariwala with Goldman Sachs. Please go ahead.

Yeah, hi. Hi, team. Congratulations on a great set of numbers. I had a question with respect to long growth outlook. The long growth now is towards the higher end of your guided range, 2x normal GDP. And the outlook over here, if I look at liquidity on the balance sheet, great. Loan growth is broad-based, trying to see if it's a fair assumption that this could sustain.

First of all, Samir, hi. You know our stance on this one, right? We always try and aim between one and a half times to two times nominal GDP growth. We look at opportunities in the marketplace, and you know that we have no restriction as far as liquidity or capital. Where we see the opportunity, we will grow, right? But it's always about profitable and responsible growth, right? And that's the philosophy that we've been kind of going after. We've got credit costs under control, and therefore, continued focus on responsible and profitable growth.

Thank you.

Thanks, Ravid.

Thank you. Participants in the queue, I request you to please restrict yourselves to one question only. Our next question comes from the line of Abhishek Murarka with HSBC. Please go ahead.

Yeah, hi. Good afternoon, everyone, and congratulations for the quarter. So, just how should you think about OPEC's growth going forward? The last two years, it was 10% last year and I think 4% the year before. Now, we are looking at probably higher growth in retail loans, overall higher loan growth, even term deposits, etc. need to be raised incrementally going forward. So, how should we think about the overall OPEX growth? And I don't mean in cost to income terms. So, if we just think about OPEX, should it be mid-team, you know, low-team, single-digit? How should we think about it? And where are the investments required in the next, say, two years?

Yeah, so, look, when we think of OPEX growth, we divide it into a couple of buckets, right? One big bucket is obviously acquisition costs. And like I said, our aim is to grow at one and a half to two times nominal GDP growth. And where we see opportunity for safe and profitable growth, we will go aggressively at it. And therefore, if OPEX goes on account of acquisition costs, that we really, really appreciate. Number two, the second bucket really is about technology. And as you know, we are very big believers in technology and in automating and digitizing, leveraging AI through our business. Technology accounts for roughly 13% of our total OPEX. And I suspect it will continue at that level on a go-forward basis, because we will continue to invest in technology. The third is marketing. I think you would have seen, and I hope you've seen, that our brand-building efforts have really paid off for the company, and we want to continue with that as well. So those are what we call good costs, and those are the kind of costs that we would like to grow. Now, other costs, you know, which are like fixed overhead or, you know, paper or, you know, processes which are manual, we want to go after them aggressively, aggressively and kind of cut costs to make the place more efficient and, you know, build the pipe so that the additional volume, the marginal cost is very, very low. So, areas which add value, we are very happy spending the money. Areas which we can get much more efficient, we will. I hope that gives you a sense of how we are looking at OPEX.

Yeah, so if in terms of good cost that you say, would that be, say, half or three-fourths of your overall cost? And in terms of growth, would it lag loan growth?

So, first of all, we don't really disclose different elements of cost other than what is there. Now, when we get acquisition, obviously acquisition costs are at the same time as the loan origination and therefore strongly linked to loan origination and deposit origination for that matter. And that correlation is very, very sharp.

Got it, got it. Thank you so much. I will come back. Thank you.

Thank you. Our next question comes from the line of Rikin Shah with IIFL Capital. Please go ahead.

Hi, thanks, and congrats on very good set of STNR mobilization in the quarter. I had two questions. First one on the NIM trajectory, Devang, you did highlight the pulls and push in the 3Q. So, is it fair to assume that the margins in 3Q dip and then they subsequently start recovering from 4Q onwards? That's my first question.

So, Rikir, hi. As I said, the third element, of course, besides what you mentioned, is also the repo transmission on the floating rate book, right? Because that will start from October. Of course, in the Q3, the full effect will not be there. But the repo transmission effect will also start from Q3, and I think the full impact will be felt in Q4. So I think these are the things we know today, and that is what will impact NIM going forward.

So, but at balance, do you think that the positives can offset the negatives or 3Q? Just trying to understand the very near-term 3Q trajectory. I agree. 4Q onwards, I'm pretty clear that margins will be moving up. If you could throw any light on that.

I think, see, look, we really don't provide margin guidance. Having said that, you know the repo rate, and you know that it takes about three months to kind of bleed right through, right? You know that we deploy in the rate at which we deploy, right? So you can kind of do the math, right? It should be significantly different.

Got it. And the second question is on ECL. I think in the previous quarter, you had guided that the recurring credit cost can be higher by 12, 15 basis points or so. But on the one-time transition, I do appreciate that we have excess significant capital, which can very easily take care of this transition. But there would still be some adjustment required to be made in the network. So, would you be able to quantify what that one-time impact could be on the 1st April?

Yeah, I think, Rikir, I had said that earlier, that the one-time effect will be less than 2% of the net worth, which will be there. And on this recurring ECL cost also, you know, there have been discussions going on, actually, some clarity still emerging, certain clarifications also going on. So I think while we had guided the 12% to 15% thing, BIPs thing, I think that also, I think we will have to wait for further clarity, which we likely to get during Q3. But the one time is about less than 2% of the network, which I had said earlier as well.

Got it. Thanks. And just one data keeping questions, if I may. Could you split the loan book in terms of percentage link to repo, MCLR, and fixed? We know overall floating fix is 70-30, but does the split between repo MCLR as well?

So, Rikil, with this loan growth of September, which we have seen, roughly 60% of the book is repo link, roughly. This is repo link, I am saying, not floating, repo link.

And floating would be 70 total?

Around 65-70. Yeah. Okay, perfect.

Thank you so much.

Thank you. Our next question comes from the line of Jayant Karote with Axis Capital. Please go ahead.

Thanks for the opportunity. Probably this question is on unsecured. If I were to see what's happening since last couple of quarters on unsecured, this quarter, there's a big surge in personal loans, a movement of nearly, I think, 1,000 crores. We have seen something similar happen in 3Q, 4Q, and then 1Q was flattish. So one is trying to understand the sustainability of a very strong number like this. How should we think of the next couple of quarters? And second, within that, on microcredit and credit cards, so credit card, again, you have good two quarters back-to-back of nearly 500 crore sort of accretion. Anything that you are doing differently because the industry seems to have a problem on the revolver book. And second is microcredit given any no. And then again, just tying all three together, I am trying to understand if this 1,700, 1,800 crore kind of a run rate can be continued in the immediate near future. Thank you.

Hi, Anup here. See, as I said earlier, our relative market share on this unsecured product is very small. The brand franchise strength is very high. So, now that we have come out of what I spoke about, the credit cost, which is within our risk appetite threshold, which we feel comfortable about, we are granularly building the cards business, the PL business, the business loan, and also the microcredit. We don't want to rush it, but just focusing on offering it to our existing customer between PL cards and BL and, of course, microcredit, where we are doing a 100% guarantee. We feel reasonably comfortable that we should be able to grow it over a long period of time. But the focus is around keeping the cost down, working with our existing customer so that, you know, when your size is small, you can do, right? We went through a crisis. We don't want to try to do it very fast, but we will value compound on this. On the unsecured, we have also started offering both term loans and overdraft products. Overdraft products are being offered to our affluent customers, and the term loan is being offered to the mass affluent, and that also offers a good corridor because these are products which consumer demand is high.

And these new products would have contributed meaningfully to this growth this quarter or still to nascent?

No, no, no. I think we are slowly and steadily we are building, but we feel good about providing, you know, the products which meets customers' requirements. And on credit cards specifically, yes, I think this whole solitaire which we keep speaking about started really playing out. This is a product which got conceptualized two years back. We stack the right products for right customers. And between our brand channel, digital channels, between our relationship manager on Affluent, we do see good traction. And, you know, product is such that when you think about a good product, people start buying it. So I guess it's all about the strength of franchise which you are bringing it to play.

I'm afraid to say the volatility we saw in personal loans last quarter, something like that, you know, 1,000 going to zero and then back to 1,000, something like that should not happen from here.

You know, what was happening, you know, I did not want to go back to all the way back because last year around, we had done one inorganic portfolio of Stancy, which was running down. So, of course, that was causing that plus minus, but I think that's pretty much off now. Very small is left, so now it's all grunt work. So, I think it will be steady and value compound. And there is traction because our brand channels are also offering these products quite nicely.

Thanks. Anup, just to you, this particular question, if I could squeeze in, do you believe unsecured is a good tool for customer acquisition? And that will be my last question.

I never like unsecured to be a good tool. You know, in a bank, you have the advantage of great deposit customers, which you get. Over time, looking at their customers' data, which you have enormous amount of information in a bank versus others, you just cherry-pick and offer them through a digital experience, low friction. I think there are customers who are willing to take. So, I don't like Unsecure to be your acquisition tool. That never works.

Thank you.

Our next question comes from the line of Jai Prakash Mundra with ICICI Securities. Please go ahead.

Yeah, hi, sir. Thanks for the opportunity and congratulations, Anup, on your MDCO roles. I have a few questions. First, Anup, on your thought process on non-salaried segment, it looks like that this segment is catered more by MDFCs and select MDFCs and maybe only calibrated basis by banks. If you look at Kotak, are you under-indexed on that segment? Is there any thought to increase penetration in that segment or it would be only a gradual calibrated approach?

What segment was it? Can you repeat?

Sorry, non-salary, non-salary segment.

So, listen, as Ashok has clearly articulated the strategy of the bank, it is built around 4 plus 1 plus 1, which is the affluent and private banking and high street, high customers, which is the affluent India. The second is the GoCore India, which is the mass affluent, which we cater through our 811, and now we are broad based through metal debit cards. So, even in the corporate segments, we are getting good traction. And the third is the SME, you know, the brand, Kotak, very strongly resonates with the self-employed of India. And that's a, in my mind, a core moat of the brand. And then, of course, the NBFC, you know, the Tractor, the CVC, the microcredit and gold. I think if I look at it, we want to play in all the segments in a rightful corridor. So, self-employed, of course, we are building it up, which Paritosh has now. What we have done is, earlier, the SME used to be broken between, you know, one in Agri, one in consumer, one in mid-corporate. We just brought all of them under one, which is also helping us to double down on it in terms of not only giving them lending products, but in a way, focus around, can I get the customer to sole banking with me? Can I get this customer to do family banking with me? Because the value is an overall relationship value on self-employed rather than just giving a lending product. So I guess different license play differently. Our focus here would be to do overall value. And banks can offer products which non-banks cannot offer. Think about it that way. So we are doubling down on that and also bringing the process. My thinking is, if I can get a very good process, people are willing to take it. And if your market share is what it is, you can offer. So, I guess, be meaningful and be steady and just double down on the core focus segment which Ashok had called out.

Right. And would you believe that in, let's say, PL product, how much will be the non-salaried segment? And would it be lower versus your PS or higher or is there any scope to improve that?

We don't disclose specific split of salaried on salaried, but, you know, this is the opportunity of the customer, this is the banking relationship and the debt. We offer it to both salaried and self-employed, whether it's personal loan to salaried or unsecured business loan to these non-individuals. I guess both has fantastic opportunity and our relative size, being small on that, we can find opportunities to grow. But as I said, just stay on the corridor of the risk appetite, which is acceptable to us.

Right.

And secondly, your thought process on cost to assets, right, so which has improved, has been actually improving. And this quarter, because of FPNR, it has improved further to 2.4. But if I look at relative basis, we are still higher than your peer sets. What is your thought process over this matrix over the next one, two years? Cost to assets.

Yeah, Ashok. Okay, listen, you know, you would see some good improvement you are showing in that number. Of course, we have ambition. It is not right for me to give you a forward guidance on that, but with the kind of focus we are trying to build in, we are doing more from the same customer, because if you built on a simple acquire and cross sell model and continue to do better cross sell, Many of these metrics can have significant improvement, but look at it, as Ashok said, where we need to invest, we'll invest, and where we need to take out costs, we'll take out costs, and we will be looking at it very, very clinically.

Thank you. Ladies and gentlemen, we will take that as our last question for today. I would now like to hand the conference over to Mr. Ashok Vaswani for closing comments.

So, thank you once again for joining us this afternoon. Really appreciate your time, and we will look forward to seeing you for the third quarter in January. Thank you very much. Bye-bye. Thank you.

Thank you. On behalf of Kotak Mahindra Bank Ltd., that concludes this conference. Thank you all for joining us. You may now disconnect your lines.