Ladies and gentlemen, good day and welcome to the Kotak Mahindra Bank Q1 FY24 earnings conference call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing Star and then 0 on your touchtone phone. Please note that the conference is being recorded. I now hand the conference over to Mr. Uday Kotak. Thank you. Over to you, Mr. Kotak.
Good evening, friends and colleagues, and welcome to you on a wonderful Saturday evening. I know you have had a very busy day today, so have we. I want to really start by sharing with you something which is on the top of my mind. For a long time, I did not believe in the concept of astrology and stars, but when I think about the India's situation today, I really feel that the stars have aligned for India to be in a almost wonderful, unbelievable position as it stands today. If we look at just the geopolitics of the world, and I'm just keeping my fingers crossed, India can continue down this position.
It is unique for us to see the nature and the depth of our relationship with the United States, with Europe, whether it's France, whether it's UK, whether it's Germany, whether in the Middle East, whether it's UAE, whether it's Saudi Arabia, whether it's Israel. Moving further, whether it's Japan, whether it's Australia, we have been able to even manage our relationship well in the context of all the geopolitics with Russia. In this context, the axes for the new geopolitical dynamics are uniquely positioned in favor of India. When COVID happened first, many of us were seriously worried about the impact on the Indian economy. India did a reasonably good job in managing itself through the COVID period. When the Russia-Ukraine war happened, we were all very concerned, including on the price of oil and how it would impact India.
India navigated itself beautifully through this and actually ensured that our key necessity, which is energy, not only is taken care of, but actually effectively the cost of energy was lower than what it was in the pre-COVID world. Now, the whole relationship with the rest of the world is almost at a stage I can't recollect having seen in my career over a long period of time. With this geopolitics, which is getting increasingly critical for how the global investors think about India's positioning, you combine it with an extremely benign, and I would say positive macro situation on many fronts for India. Our current account deficit at 1% of GDP, that's what it looks like for the current year. A balance of payments, which is looking very strong. Our reserves having crossed $600 billion.
Over the last many years, we have also been able to get a better handle on some other macro factors like inflation, and to see our current inflation situation to a point where the differential between the Fed rate and RBI's repo rate is now barely about 1% as a differential. I haven't seen that for a long time in my career. In that context, we have really moved a long way to a very sound macroeconomic fundamental situation. I must take this opportunity to compliment, our government policymakers and regulators for really giving India this very, very positive positioning which we are in. It is at, in this context, I think both policymakers, governments, and practitioners can take a bolder view for India's future.
I think it's a great time to be building and nurturing business in India from a medium-term perspective. That's how I feel about India at the present, and feel much more confident and bolder about India's future. We all will have to take calibrated risks in the different areas we work in to take the calls and make this dream happen, and make India in a much superior position, including over time. I hope that's not too long a time, where the Indian currency gets more and more acceptable as a currency in many, many more countries from where it is today.
With this background of a positive alignment of stars for India, a strong geopolitics, strong macro, and a mindset for us to really take this forward, we now need to ask the things we need to watch out for as we go forward. I think one of the most important things for India will have to be a continuing, stable political environment, and I'm using the words about a stable political environment for us to be able to sustain these growth rates over a long period of time. At the same point of time, I think we need to keep a strong, united India through this period, and the famous words of unity and diversity as a single country are going to be even more relevant as we go into the future.
If we can keep a strong India, a united India, and a long-term stability, which combined with political and macroeconomic stability, India truly has a great opportunity into the future. With this backdrop, I'm happy to say that we at Kotak Mahindra Bank continue to strive and grow, and we are feeling pretty confident about how things are shaping. While my colleagues will take you through a number of developments, there are two important developments which stand out for me to share with you. The first is a very significant lever in terms of our deposit growth. Our deposits have really picked up and are growing at a very good pace, driven by a product which we think is, again, bold and disruptive in this marketplace, which we call as ActivMoney.
This product for us, just in this quarter, has grown at a flat rate of 24%, which would make it annualized nearly 100% growth on an annualized basis. It's a unique product which is now about 7%-8% of our total funds, our total deposits, and it positions itself beautifully from the point of view of cost of funds between a traditional deposit and CASA. If a savings account cost for us is about average of around 3.6%-3.65%, average, and a term deposit cost, which is between 7%-7.3%, a sweep deposit or ActivMoney, as we call it, we offer our customers 7% on a 6-month FD and the corresponding rate if they break it earlier.
Based on our experience, the effective cost of this ActivMoney is in the range of 5% to 5.25% broadly, which gives us a sweet spot between our savings account and our term deposit, with significantly better alignment in the favor of the customer. If the customer keeps it for a longer time, the customer gets it more. This is a product which we are going all out. We will continue to go all out and focus on this as one of the core products we will offer. Yes, to a certain extent, you can see it in the CASA ratio.
There is an internal cannibalization on CASA as our customers move into the Active product, but we believe this is in the interest of the customer, long term, giving us a much greater flow of deposits into our coffers, and we will sustain it over the medium term as a strategic intent to build a stronger, stable, and a more customer-engaged franchise around ActivMoney in our menu. The second development, which is again making me quite in a way proud, is something about our international fund management. More than 10 or 12 years ago, we started on our international platform, an India-dedicated fund called the Kotak Midcap Fund. The primary source of distribution and the focus was in Japan, and we have now a very significant distribution network to Japanese investors. Many Mrs. Watanabe's and others have invested in this fund.
I'm happy to share with you that we have now, as of end of June, crossed this single fund, which is an active midcap fund, has crossed two and a half billion dollars, making it one of the largest India-dedicated active funds in the world. In just in the quarter, April to June, in one quarter, we have got fresh inflows into this fund in excess of $500 million. It's a matter of particular pride for us since, when we started this, our entire offshore fund management, we were, first of all, countered with a question that you don't have a global platform, how will you build an offshore fund of scale?
It is that progress we have made on this offshore fund and other international funds, it gives me hope that if you have the right product and the right distribution, it is possible for an Indian firm to be thinking more positively about global opportunity as well. The other point on this fund is that even in July, the flows continue to be very strong, coming from various geographies, including Japan. With that, I will now hand it over to my colleague, Jaimin Bhatt, and with my all other colleagues from my group management council are here with me to, on this call, to take you through the various aspects of Kotak's financials for the first quarter. Over to Jaimin Bhatt.
Thank you, Uday. Let me start with the consolidated numbers first. quarter one, FY24, it is June, we closed on a consolidated basis with a post-tax profit of INR 4,150 crores, which is 51% higher than what we did in Q1 last year. The bank itself brought in INR 3,452 crores during this quarter. We'll talk about the bank in some detail as we go forward. Kotak Securities got in INR 219 crores this quarter, which is about the same as what they did last year, and against INR 182 crores they did in quarter for the last year. The market share of Kotak Securities of the overall market has increased from 4.2% last year, first quarter, to 7.5% this quarter.
Kotak Prime got a post-tax profit of INR 218 crores this year, this quarter, versus INR 157 a year ago. Last year, quarter one, Kotak Prime had taken a one-time hit of over INR 100 crores on a pre-tax basis due to change in accounting policy on brokerage. The vehicle book in Kotak Prime has actually gone up by 31% on a YOY basis. The other NBFC, Kotak Mahindra Investments, has had a post-tax profit of INR 102 crores this quarter, versus INR 63 a year ago. This is on the back of a 50% growth in the advances book there. The business correspondent in microfinance, called BSS, has now had a post-tax profit of INR 95 crores this quarter, versus INR 56 a year ago. The life insurance entity brought in INR 193 crores this quarter, versus INR 248 a year ago.
The mutual fund entity contributed INR 106 crores, which is the same as what they did last year. In Q4, the mutual fund entities had a capital gains income of over INR 90 crores against pre-tax. The overall assets under management at the group level now, which have gone up by 23% on a YOY basis. At the consolidated level, you see an adjustment of INR 375 crores on the sheet, which is largely on account of dividends received by the various companies. The bank itself got about just over INR 300 crores out of this. The consolidated assets at the group level now crossing the INR 4 lakh crores mark, and it is about 19% higher than what it was a year ago. The capital and reserves at the group level at INR 116 crores.
Both the NBFCs, Kotak Prime and Kotak Investments, have capital adequacy of 26%+, the life insurance entity having a solvency of 2.68%. The ROA at the group level at 2.63% and capital adequacy comfortably at 23.3%, with CET1 itself at 22.3%, and book value now at INR 584 per share. If I go to the bank standalone, the first quarter recorded a profit of INR 3,452 crore, which is 67% higher than what we did in Q4 last year, and a tad lower than what we did in the immediately preceding quarter.
Q1 last year. Q1.
In Q1 last year, yes. The NII this quarter at INR 6,234 crore, which is 33% higher YOY basis. Q1 also saw fees and services grow by 20% to INR 1,827 crore this quarter. The other income, which is non-fees and services, clocked INR 856 crore, partly helped by a reversal of INR 240 crore on MTM hits, which we had taken in previous periods. Q1 last year had MTM hits of INR 857 crore. We continue to have a large part of our book on AFS and HFT. As of June 13th, this amounted to 74% of our overall book, with a modified duration net of OI being 1.3 years. Overall cost during the period at INR 3,967 crore.
The employee costs look higher this quarter compared to both last year, first quarter, as well as the previous quarter. Quarter one last year, the cost had dropped sharply due to change in interest rates, and Q4 had a change, which a beneficial change on account of pension annuity rates. We don't have that benefit this year, this quarter. The other operating expenses take a higher load on account of IT and promotional expenses this quarter. The pre-provision profits are 78% higher than what we did last year and this quarter at INR 4,950 crores. Our provisions at INR 364 crores gives us a pre-tax profit of INR 4,585 crores. In quarter four last year, we had a favorable tax order, which resulted in that quarter's tax rate being lower.
This quarter is a more normalized tax rate. On the balance sheet standalone, we crossed the INR 5 lakh crore mark during this quarter at the bank's standalone levels. Before taking account of IBPCs and BRDS, advances grew 19% YOY and closed at INR 3,37,000 crore. On a YOY basis, advances have grown in most of the categories: credit cards, home loans, tractors, CVs, SME, microfinance. Our unsecured retail book now, which includes retail microfinance, now at 10.7% of our advances. Net interest margin, which was 4.92% in Q1 last year, now at 5.57%. In Q4, it had peaked to 5.75%. As of June 30, the bank had 43 million, 43.5 million customers, which is 9 million higher than what we had a year ago.
On asset quality, the GNPA at 1.77% versus 2.24% a year ago. With a PCR of 78%, our net NPA now are 0.4%. Stipulates this quarter were INR 1,205 crore, of which 288 got upgraded during the same quarter. Our fund base restructured under COVID and MSME aggregating to 0.19% of our advances. SMA-2, which is for borrowers with exposure of INR 5 crore plus on funded basis at INR 203 crore. Our CASA ratio at 49%. As Uday mentioned, during this quarter, we had reactivated ActivMoney and the amounts under TD Sweep grew by 24% during this quarter, not annualized.
The capital adequacy at the bank, again, healthy at 22% overall, with CET-1 itself at 20.91, 20.9%. At the bank standalone, the ROA for this quarter at 2.81%. I'd hand over to Manian to take on the corporate book.
Thank you, Jaimin. I'll make a short commentary on the wholesale businesses. During the quarter, we saw a reasonably strong demand for credit offtake, especially among the larger corporates. Our wholesale book grew by 7% QOQ. Two other segments which did well were the MNC and the NBFC segments. In MNC, we are seeing good traction in terms of new-to-bank customers. With MNC's increasing footprint in India, both in manufacturing and services sector, we see an opportunity there. We have a dedicated country-focused coverage strategy, where we are seeing early success. On the NBFC segment, we are seeing good growth in credit offtake, as the demand remained robust across all retail assets, including affordable housing, CE, passenger vehicles, SME, and even unsecured segments.
While we have witnessed healthy growth in the number of SME NTBs, the book growth is lower than expected due to lower utilization of limits. Effective first April this year, we have also carved out a separate segment called mid-corporate segment. We believe this segment has potential to grow faster, and we have put in place a dedicated team to focus on new client acquisitions and grow our franchise amongst mid-sized corporates. While it is still early days, in Q1, the business has grown at a healthy rate. While volume growth has been reasonable, on the pricing front, we continue to witness spread compression due to competitive pricing pressures in the market. However, we continue to follow a disciplined approach of taking measured risks only where risk-return metrics are justified.
We are also focusing on identifying opportunities to leverage our structuring and advisory capabilities to identify better yielding opportunities without commensurate increase in risk. We continue to focus on fee income, which shows a healthy growth in QOQ basis. We have also seen strong traction in our DCM business in this quarter, with completion of some large deals in the large corporate space. We have closed diverse set of deals across high-yield structured credit bonds, high-grade bonds, REITs and InvITs. Favorable interest rate environment has seen also the wholesale bank benefit from MTM gains on credit substitutes in this year, this quarter. Trade costs continue to remain low. On the liability side, we are seeing good traction on the non-custody current account balances. Custody flows have been a mixed bag.
Global headwinds caused some amount of flight of capital, both in the listed and unlisted spaces in the initial quarter, part of the quarter. We saw some inflows back by end of June, in line with the change in market sentiments. The domestic custody business has done better than the FPI custody business in this quarter. On the digital front, Kotak FYN, our integrated corporate portal for trade, CMS, and account services, continued to scale up well. We also implemented an online supply chain platform with industry-preferred features like dynamic discounting. Overall, the business remains in good health and with healthy ROEs. Let me hand it over to Shanti to take you through the commercial bank.
Thank you, Manian. I'll start with commercial vehicles. At the industry level, the volume actually witnessed a de-growth of 3% YOY and immediately on a QOQ basis, even lower at 22%. This is on the back of a very strong Q4. However, our disbursements in unit volume terms this quarter has grown 21% YOY, leading to an improvement in market share. At an industry level, the freight demand and availability of return load continues to be stable. We expect this to get better as we get into the busy season in Q3. Collection efficiency for us continued to be stable, and we will continue to build our book and market share in this segment with a focus on risk-adjusted return and increased distribution across geographies.
Construction equipment at an industry level showed a growth of 17% YOY in Q1 due to sustained execution of infra projects, and aggressive targets for road building and expressway under the Bharatmala and big-ticket infrastructure under PM Gati Shakti. This is giving boost to growth in the CE segment. Our disbursements were in line with the market growth, and collections in this segment have been stable. Tractor finance. The tractor industry actually de-grew 2% due to higher rates and higher inventory at dealership at the beginning of the year. While collection efficiency continues to be stable, impact of monsoons, excess in some parts and deficient in other parts, will needs to be watched closely to assess the impact it can have on both demand as well as collection.
We grew our disbursements in used and new tractor financing in this quarter, leading to a step-up in market share. Overall, advances grew at a healthy pace of 26% YOY. This will continue to remain a focus segment for us as we deepen our distribution. MFI. Our microfinance continued its strong growth momentum in Q1. With disbursements growing at 69% YOY. We currently operate in 11 states through a network of 719 BC branches, and have a customer base of 16 lakh women borrowers. Asset quality continues to be strong. Our outreach to the microfinance segment has also enabled credit for low-income households in micro enterprises and allied activities. We expect the credit demand in rural economy to be stable, as well as see growth in our microfinance business.
On the agri side, we saw some reduction in utilization as the rabi peak procurement started getting utilized. There were increases in prices of agro commodities, but processors and traders held on to the stock in the hope of higher prices. Although above factors led to a muted growth in our agri advances in Q1, we continue to focus on new acquisition of customers across geography. The credit quality in this segment has been very stable. I will now request Virat to take you through the consumer banking highlights.
Thanks, Shanti. I'll start with consumer assets. Our strategy to gradually build our market share in the unsecured business backed by data analytics, continues to yield positive results. Our unsecured products in consumer bank have grown 51% on YOY basis and approximately 9% on QOQ basis. From a risk perspective, our unsecured loans portfolio continues to hold well and is adequately priced for risk. Our mortgage lending business continues to grow well at 18% YOY, and we see traction both in home loans and loan against property segments. The book continues to hold well on all parameters of collection. We continue to invest in our cards franchise, with overall credit card advances growing by 67% on YOY basis. Our market shares have seen steadily growing, both on spends and cards in force. We continue to strengthen our co-brand product suite.
Last quarter, we had shared about our new Indian Oil co-brand. This quarter we are happy to share that we have gone live with a co-brand card with Myntra, that would enhance our value proposition to our millennials and Gen Z customer segments. We also went live with UPI on credit card, which now enables our RuPay credit card customers to map their credit card on UPI payment apps and use the scan and pay functionality. Our story on digital acquisition continues. Significant proportion of the personal loans and credit cards continue to be sourced digitally. Moving on to business banking. Bank continues to focus on growing business banking franchise, both on assets and liabilities. While the demand for new working capital loans have shown healthy growth, improvement in the limit utilization is relatively slow.
The demand for unsecured loans by the business customers continues to show positive traction, both in terms of demand and portfolio performance. We are witnessing a steady formalization of informal units in MSME space with higher GST registrations and compliance. This is enabling us to improve both the speed and quality of underwriting to this segment. With focus on digitization, we have gone live with our new loan origination system, helping us to further improve our turnaround time and enhancing our portfolio management ability. The assisted digital current account opening have shown improvement in resource level productivity and customer experience. The traction on ActivMoney among current account customers continued to show encouraging results in higher acquisition of new-to-bank customers, and also building balances of our existing customer base.
With the aim of supporting the startups, we have revamped our startup proposition with more power-packed features on banking and non-banking needs in their business journey. Our QR acquisition across merchants is gaining speed, with growth in new merchants acquired and spends driven by product innovation. We have also empowered merchants to accept digital rupee from their customers, furthering the nation's march towards digitizing retail franchise transactions. Coming to liabilities, the total deposits have grown at 22% on YOY basis, with major contribution coming from fixed deposits. With an objective of building a retail staff franchise, we rolled out an ActivMoney proposition, which allows savers to earn higher interest on their deposit without compromising on liquidity or having to incur penalty on withdrawal.
This feature allows customers to enjoy up to 7% interest on savings balance above a pre-decided threshold.
This not only facilitates in holding on to the existing deposits from being moved to higher yielding investments options. It also helps us in acquiring new customers. With focus on enhancing our large premium banking franchise, the all-new Privy League proposition with best-in-class features and lifestyle benefits was introduced. We launched Sankalp savings account with exclusive features that cater to evolving needs of emerging India in semi-urban and rural markets. The revamped corporate salary product offering is showing encouraging results. We were successful in building our term deposit book, which showed 49% growth on YOY basis. With this, I'll pass on to Milind.
Colleagues, before Milind starts, let me just introduce Milind Nagnur. Milind Nagnur is the Chief Technology Officer of the bank. Milind joined us on August 1, 2022, so he's now close to celebrating his first birthday, and we thought that's a great time for him to come and meet investors virtually and share the developments on the technology front as he's gone through nearly one year at Kotak. Milind comes with a very interesting background, being an engineer for a long time, IIT Bombay, then IIM Calcutta, then spent about 25, nearly 23-25 years in the U.S. across-
... various banks, thereafter for a few years at a Zelle, which is a company which is into started by all banks, similar to an NPCI concept in India, he, Milind, was the Chief Technology Officer there. We are really delighted to have him come and join us about a year ago. Over to you, Milind.
Thank you so much, Jose, for such a generous introduction.
Mm-hmm.
I'll provide a short update on our tech and digital strategy.
Yeah, go ahead.
Our tech strategy is aligned with what customers want from us. Whether it's in the branches or in the digital channels, customers want tech that works fast, works reliably all the time, and is always on and always available. We will therefore continue to invest in nurturing deep engineering talent, software engineers and principal engineers, who know how to design and deliver fast, robust, reliable platforms. We will continue to fortify our digital and technology core with strong talent, as well as robust systems design and architecture. A short glance at the metrics on the digital page show notable improvements in digitization across both the consumer and the corporate area. We strive to see ourselves delivering technology that would be a key differentiator for our customers.
That would be my short update on technology and digital, I'll pass it on now to Deepak for the next topic.
Yeah, thanks, Milind. I'll take up Kotak Prime and Kotak Life. First, a quick update on the car market. What we're seeing really is, while the wholesale industry numbers are looking up, they're up 9% plus on a Y-o-Y basis. Retail is down practically about 10%. That really means we're seeing a lot more stocks at the dealer level, so inventory is piling up at the intermediate level really. On the demand side, entry-level cars still is a problem, that manifests itself in us seeing a lot more promotional drives from both manufacturers and dealers. However, when you look at the SUV segment or the luxury segment, both of them are seeing reasonably good demand.
In fact, the waiting periods are only going up and up in some of these cases, really. I think when you look at Q2, one probably will expect a subdued Q2 for two reasons. One is, of course, monsoons have been heavy this time. Second, of course, this time, if you recollect, the entire festival season has got pushed by at least a month, so it really happens in Q2, so Q3. Q2 should probably be not as good as the past. Overall, from a financial point, financials, the profit after tax is significantly better. Remember, last year, this quarter, we had an accounting policy change because of brokerage, because of which the PAT was depressed. Otherwise, KAT is doing fine.
On the life side, Kotak Life, what we're seeing really is premium growth has been relatively slow, not as good as probably some of our peers. This quarter, we expect to catch up and grow faster, particularly on the group side. The other big piece really on the life side really, is that going forward, we'll have to watch out for how the entire, you know, expense of management philosophy really pans out and what it really does to product sales and product margins as we move ahead. From a profitability point of view, the profits for this quarter are slightly subdued as compared to the previous ones. With that, I'd hand over to Jaideep to talk about securities.
Thank you, Deepak. Here to talk on Kotak Securities. Just a brief, before I get on to the numbers and performances. The cash market volumes this quarter have been pretty subdued and have started seeing some bit of improvement in the months of June, and that continues in July. The options market or the derivative market has gone up significantly. It's more than doubled year-on-year and shown maybe a 15%-20% increase quarter-on-quarter as well. KS for Q1 did a top line of INR 805 crores compared to INR 744 crores last year and INR 682 crores in the last quarter.
The PAT for this quarter is INR 219 crores, which is flat over last year and compares to INR 182 crores over the last quarter. The cash market share for KS as a firm for this quarter is 10.5%, compared to 10.4% for last year as well as last quarter. As Jaimin earlier mentioned, and I mentioned earlier as well, that the overall market share has nearly doubled on a doubled volume for Kotak Securities, which is something which been good for this quarter. On the digital side, a lot of developments. We focused primarily on platform and product.
The Kotak NEO platform is a top-of-the-line OMS and RMS, as called by us, which is an order management system and a risk management system, which is what we're currently using. On the product side, two products which have met with very decent success is Trade Free Plan and Trade Free Youth Plan, which has been now in existence for some time. Clients have liked the product and are adapting to it or accepting it gleefully. Our self-trading customers today contribute about 63% of cash market volumes and 97% of option volumes for KS. 80% of customer service requests are served digitally. The YOY growth in mobile trading has gone up 3x of last year, and on the web, it's close to 2x.
I'll now hand over to Nilesh to take you through the AMC numbers.
Thanks, Jaideep. Let me take you through our asset management business. Our total average AUM grew 10% year-on-year in first quarter FY 2024, to reach INR 3.12 trillion. Our equity average AUM growth was at 16% YOY to INR 1.67 trillion. Our active equity AUM market share grew to 6.43% in first quarter FY 2024. Our SIP inflows for March 2023 grew 21% year-on-year to touch INR 9.1 billion. Our retail AUM stands at 55% of total AUM. As mentioned by Uday, we now manage largest India-dedicated offshore fund, wise Kotak Funds, India Midcap Fund for global investors. Second largest actively managed onshore equity fund for local investors by Kotak Flexicap Fund.
Our profit after tax was flat at INR 106 crore in Q1 FY24, as economies of scale was shared with unit holders. Our total assets under management across mutual funds, PMS, offshore, insurance, and alternate assets grew 23% year-on-year, to INR 4.67 trillion, led by alternate assets. I'll now hand it over to my colleague, S. Sriniwasan.
Thank you, Nilesh. The alternate asset management business has been built since 2006, with aggregate assets that we have raised of $8.8 billion, growing at a CAGR of 26.5% over the last 17 years. In the last 12 months, we have raised $3.6 billion across multiple asset classes, 2 funds in the real estate strategies, aggregating $1.18 billion. A strategic situations fund, which has a first close of $1.25 billion, an infrastructure fund at $664 million, and a data center fund at $590 million. With these pools of capital that we have raised, this makes us India's truly first and only multi-asset, alternative asset management company.
90% of the assets under management that we currently manage have been raised from global institutional investors, and we believe that there is significant opportunity to scale this further. With that, I will hand it over to Jerry.
Thanks, Srini. We'd be open to taking questions now.
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 touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we request that you please limit your questions to 2 per participant. You may rejoin the queue for follow-up questions. We will now wait for a moment while the question queue assembles. The first question is from the line of Mahrukh Adajania from Nuvama. Please go ahead.
Yeah. Hello, hi. My first question is on miscellaneous income. It's been very strong this quarter, right? You have trading gains of around INR 240 crore, and then you have other and miscellaneous of around INR 600 crore. Would you have any breakup of that income?
Mahrukh, that's something I mentioned earlier. We get dividend from the subsidiaries, largely in the first quarter. As I mentioned, that's about INR 300+ crores in the bank standalone. This quarter, we also had some benefit of a transaction from our ARD team, which brought in another income into that category. Yes, that's in addition to the MTM gains, which we talked about.
Okay. All right. The other question is on loan growth. Personal loans, as guided by you, are growing very well. They're growing at 7%-8% QOQ. Is that pace comfortable, given talks around some asset quality issues in some segments? Of course, there's a mixed feedback on that, but is there any issue in any segment of unsecured loans that worries you at all?
Paul would take that question, Mahrukh.
Yeah. Yeah, hi. See, as we see it right now, we don't see any major issues in these segments.
Having said that, the overall credit environment is normalizing right now. Overall, we are comfortable with all the unsecured segments and the way they are currently behaving.
Okay, thank you. Thanks a lot.
Thank you. The next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Hi. The question is with respect to asset quality. In terms of the slippages, compared to the run rate, which we had seen in past few quarters, it has gone up, and even credit cost is almost like 50 basis points plus. In fact, at the stance of, we should be able to sustain the relatively lower credit cost of, say, less than 31 basis points, because that was not much visible. Can you just highlight maybe what's leading to that, and what should be the sustainable level of slippages and the credit costs with this unsecured pool? That's good.
Yeah. You know, if you were to look at the entire credit environment, and how it has evolved over the last 2 or 3 years. Then look at the current context, you know, the COVID period was one which really served to flush out a lot of the stress in the entire system. That had 2 impacts overall. One, when you take out a lot of the. You know, if you take out a lot of the bad assets over a period of time, therefore, in the following periods, a lot of the overall credit costs come down because the flows also come down because recoveries tend to be good in that period and sub, you know, super normal.
The second is because a lot of the weaker accounts have got flushed out, what you also find is that subsequent underwriting in the immediately subsequent period tends to be much better. This is really the phenomenon one saw in the last couple of years. I believe the environment is now normalizing, and, to that extent, therefore, while we are not seeing anything to worry about, I would say it's now becoming more normal and what we would usually expect. Yeah.
Yeah. Anything on TCLCS, maybe the flow from the SME, was that relatively higher in the overall slippages or maybe, broader, the slippages across the segments has been similar to what we have seen in the last few quarters?
Flows from SME were not higher than normal, and they're absolutely normal right now.
Cool. Okay, yeah. Thanks a lot.
Thank you. The next question is from the line of Gaurav Singhal from Aspect Management. Please go ahead.
Thanks for taking the question. Because of the success of the ActivMoney product, I'm just wondering if you would still maintain the stance you had in the previous quarter call, where you said that NIM probably, based on your assessment so far, does not decline below 5%. Would that still be correct, given that ActivMoney seems to be cannibalizing CASA? That's my first question, and I have a follow-up.
Let me take that. Yes, if you look at the fact that this quarter, last quarter itself, we had talked about the fact that the 5.75 was a peak, and you could see some correction there. We've talked about this period, we've closed at 5.57. While the ActivMoney does mean that we are paying higher than what we would have done on savings account, but recognize that the ActivMoney costs us decently lower than what a equivalent time deposit would have cost. A time deposit would cost us north of 7%. ActivMoney would be more like 5.5 after. On the assumption that you will not everything stays there for a 180-day period.
It's a mixed balancing between the two, more importantly, we are getting a flow of deposits, which has improved significantly in this quarter. While it can have some impact on the margins, it's not just because of ActivMoney. It's also last year, we saw the NIMs improving quarter-on-quarter on the back of repo rate rises. This quarter in April and June, we've seen that becoming flat. To that extent, some of that is also impacting the NIM. Your question about being north of 5%, I think for the current year, we can reasonably safely say we'll be there.
Got it. Thank you. The second question related to that: while the deposit growth has been quite good, this quarter, our loan growth at net loan growth at 2.7% QOQ is below system, which is 4%-5% QOQ, roughly. Just wondering, you mentioned last quarter we wanna be 1.5x-2x nominal GDP, which is, and we like to be towards 2x, close to 20% year-over-year. Does that view still hold, or do you feel pricing competition is so intense that 20% or only close to 2x GDP might be difficult?
Okay, let me just take that out. It is, quarter one generally has been a slow quarter. If you look at the IBPC and BRDSMO, we are still at, 3+%, 3.5% thereabout. To the extent of the fact that we've talked, for the full year, maintaining a loan growth number at about 1.5-2 times the nominal GDP growth, I think we are reasonably comfortable at this stage that we would be in that range.
I'm sorry, I see that the cash, and other balance increased quite a bit, at the quarter end. Is there some one-off here or some reason?
Can't hear him. What did he say? Sorry, can you just repeat that?
Cash balance. Cash balance has increased.
36% year-on-year. Just wondering what's the reason?
Uh, it's-
INR 2,000 notes.
Some of that is 2,000 rupee notes, which came in there, not a significant one. It's actually, if you look at the last year, it was INR 40,000, we are at INR 44,000 right now. It's not completely unusual there.
Thank you. Thank you.
Thank you. The next question is from the line of Prakhar Sharma from Jefferies. Please go ahead.
Thank you. Good evening, and congratulations on the results. I just had a question.
Sorry to interrupt, Prakhar. The line for you is not very clear. Please use your handset while you're speaking.
Yeah. Is it better now?
This is much better. Yes. Thank you.
Okay, sorry for that. My congratulations on these results and, you know, best of luck. My question on this, ActivMoney program, you know, at a strategic level, do you think this has an impact on, you know, customer behavior and how they think of deposits with Kotak Mahindra Bank? While I understand that the, you know, the blended cost of ActivMoney is lower, some deposits programs are easier to withdraw, and they can be far more sensitive to the rate environment. Whereas, you know, programs like ActivMoney probably have very advanced level people, and the customers think of deposits at Kotak.
That's why, you know, in this period, you have had, you know, a lot of savings deposit, impact on the growth. I just want to get a pulse on what do you think of, you know, this, ActivMoney type of programs on the way people, you know, see Kotak Bank and the deposit relationships. Thank you.
This is Shanti here. The whole program was structured based on customer need and customer requirement. Go back to our customer. They have short, medium, long-term needs. Part of their long-term needs, they park in term deposits. They have their short-term needs in savings. A savings bank rate is at about average of about 3.5%, and even lower. When a customer wants to have the flexibility of a savings, but slightly better returns, is when they keep the money in the savings account but sweep above a certain threshold into ActivMoney. It gives them two things. Whenever they want liquidity, they get it immediately. There is no penalty or breakage. It gives them the comfort of saying, "I am keeping my money liquid.
I'm getting a better rate than what I get in a savings account." It is this customer psychology and behavior that we tap, and we are seeing the results of this ActivMoney. That is why Uday started it here. It is between savings and term deposits. People do keep in term deposits, and the growth in term deposits has also been healthy, as you can see, because that's how people plan to cash.
I think I wanted to add something here. This is Uday here. If you go back to 2011, when savings deposit rates were opened up, most of the strong entrenched incumbents did not change their rate. We went out and started a 6% savings deposit rate and sustained it with the higher pressure from 2011 to 2020. We were perceived as the potential disruptor. In this period, we grew our savings franchise for a period of over 9 years at 40%+ compounded CAGR. We believe that we are looking at total cost of funds. We believe that we have a strong position in the CASA, which we are quite confident we will maintain at a reasonably high level versus the broad industry benchmark.
We are not worried about that in terms of absolute CASA percentages. We also believe that there's a huge opportunity for a space between CASA and traditional term deposits, with some short-term pressure on CASA. We are very clear, we see this as a sustained program, and this is not about being a disruptor for disruptor's sake. We think it's a hugely positive customer engagement and customer franchise program, and we will be going guns blazing on this for a long, long time. You know, I'd probably add two more nuances to what Uday and Shanti mentioned. One is, the product in itself helps you attract a lot, many more customers. It is a phenomenal NTB tool, you know, new to bank tool, and we are seeing early signs of that on the franchise.
The second really is for a certain set of customers who otherwise probably would have just gone because of rate, particularly the more affluent, type of customers. This is a good product to hold them back, and again, we are seeing a reasonable, you know, insight into that. The combination of this does give you a far better control over your customers.
Perfect. Thank you for, you know, explaining in so much detail. Thank you, everyone.
Thank you. The next question is from the line of Param Subramanian from Nomura. Please go ahead.
Yeah, hi. Thanks for taking my question. My question is on the cost of the term deposits. You provide us the cost of savings accounts. Now, if I try and impute from that, the cost of term deposits, it seems to indicate that, you know, from the bottom of first quarter last year, it seems to be up about 200 basis points. Is that rough number correct? Does that mean that, you know, there is not much incremental repricing that is to happen on the deposit group? That's my first question.
No, I don't think it's as sharp as 200. If you look at last year to this year, it'll be certainly lower than the 200 basis you're talking about. We need to look at it on an average basis, not on the period-end basis.
Okay, maybe I can connect with you offline on that. Any indication on where we are in terms of, you know, the incremental versus the stock of term deposits, perhaps? The differential between what we have. Yeah.
A lot of the term deposits which were taken earlier, are durations are not long, so a lot of them have got priced in in terms of their renewals. As we go forward, some more will get priced in. Assuming the rates stay as they are, then maybe after a quarter or so, I guess most of that would have happened.
Okay, thanks for that. Another question, perhaps on the operating expenses. Any color on, you know, how we see this shaping up over the next couple of years? Because, we've actually seen the cost to assets increase quite substantially over the last couple of years. You know, when do we see this start moderating? That's it from me, and, congratulations on the quarter. Thanks.
On the costs, as I explained, this quarter, we've had on the employee front, the delta looks higher because of the retirement costs. If I take that out, the employee cost delta between last year and this year is about just over 20%. This is including the increments and all, which we would have done at the beginning of the year. On the overall cost, and again, the other things are we've been spending this quarter on promotions, particularly on the ActivMoney promotions. The technology costs has got elevated and it will possibly remain there for a while. A lot of attempts and a lot of plan, which we have to bring down the cost to income and the cost to assets. But you would see that somewhere elevated for some time.
As you've seen from last year to this year, we're kind of getting some traction. As we go forward, we would have a plan to get that down as we go forward.
Okay, thank you so much, all the best. Thank you.
Thank you. Ladies and gentlemen, we request that you please restrict your questions to one question per participant. The next question is from the line of Pankaj Agarwal from Ambit Capital. Please go ahead.
Yeah. Hello, sir. Your attrition rate has gone up quite sharply over the last two years. What's causing this and how it's impacting your operations?
Yeah. I'll take that question, Shanti here. If you see the breakup of the attrition, I just want to quote some numbers. At the senior management level, it's less than 10%. At the middle management level, it's less than 20%. It's only at the junior management, which is really at about 50%, which is what our disclosure is. This is largely in sales, service and call center, some amounts in collections. This has had several reasons. Firstly, I think This was the first full year post-COVID, where people have decided their calls as far as their careers are concerned, we've had some spillover of attrition this year. At the industry level, there's a strong demand-supply gap, which continues, that's something that, you know, continues.
Despite that, we were able to fully resource our requirements despite the gap and the attrition. We are focusing on a number of areas to reduce the attrition. Sorry, another point. We also include probationary officers in the calculation, which is not really permanent employees, but we include them in the calculation for the purpose of attrition, and a lot of them are reflecting only in the junior management. Working on a number of platforms and areas, including how to make ease of working, better engagement, training, benchmarking, and, you know, technology, automation, and how to make their life easier. Number of initiatives are being worked on to see how we can control the attrition.
Far, it's not really impacted, in terms of our business, you can see that, but it's important that, you know, we work on this.
One related question. Is it the reason that cost, employee cost is going up for all the banks? Can it put a structural pressure on cost ratios for the banking sector?
I think, if you look at it, I think from an employee cost perspective, Jaimin gave you the number. If you take out the retirees, one-time cost, it's 20% YOY, if you see banks across, that's a number that is more than in line with industry trends. I think more importantly, it's important, from a longer term productivity perspective, to reduce the attrition. I think that's where I would put the emphasis on. It's not necessarily costing us that much. Yes, there is a cost, but I don't think that's a significant part of the cost.
Okay. Thank you. Thank you very much.
Thank you. The next question is from the line of Manish Shukla from Axis Capital. Please go ahead.
Good evening, and thank you for the opportunity. First, to reconfirm on trade costs, was it said that now trade costs have normalized to 50 basis points, and this is how we expect it to be in this season?
This is Paul here. What I would say is that, yes, the credit environment is getting more normal.
... I would expect that, going forward, you know, the behavior in terms of fresh flows and all of that should be in similar terms as it is currently. The second thing, one has to keep in mind is that credit costs, to a certain extent, are also influenced by mix. As the mix of our unsecured portfolio goes up, you would find that the credit costs can tick up a little bit, but that is clearly getting, you know, therefore, there is, the risk and return are therefore priced in as you think about unsecured. One has to look at the overall credit costs in this context.
Sure. Now if you put the three together, I mean, margins normalizing to 5% plus levels, some normalization of credit costs, moderation in OpEx, broadly, how should we look in or think in terms of ROAs, given where we are right now at 2.8% for the standard brand? Where does it bottom out?
Manish, 2.8% this quarter is also helped by some of the ones which we talked about, like the FGM gains, dividend comes in this quarter, doesn't happen every quarter. We've been generally north of 2.81%, don't go with that number as a normal one.
Yes, yes, the number 2.8 to 2 is a very normal range.
I said 2.81, don't go with that as, you know, normalized number going forward.
Okay, thanks.
Thank you. The next question is from the line of Dhaval Gala from Aditya Birla Sun Life AMC Limited. Please go ahead.
Thank you, sir, for the opportunity. A couple of questions. I just wanted to know, you've been fairly having strong views and bullish commentary about Indian banking as well as the country's economy. Just wanted to understand, how do you differentiate Kotak Bank's progress from here on, say, for next three to five years? What is the competitive advantage Kotak Bank would have and differentiation Kotak Bank would have versus the market?
Thank you for that question. I think we should get you for a strategy session, and we can take you through that. I think I just want to make a general point. We will, at Kotak, like, I would like to believe at Kotak, we will take decisions which are medium-term in nature. We are not colored necessarily, that if we believe a decision is right, it will be taken from a point of view of what does it do for value addition over the medium term. Therefore, we will dare to be different, we will be dare to be bold. We'll take calls which may seem, at the point of time we take the calls, a little ahead of what has to be done.
I can give you a number of examples of that in our history, whether it's a distressed asset division, whether it's alternate asset business, whether it's international offshore fund management, whether it's a tractor finance business, where we continue to have the, probably the largest market share in the tractor finance business, whether it's private banking, which is something which we really built as a bank, because we thought it was a very significant opportunity going forward. Whether it's our product excellence in our investment bank or institutional equities franchise.
Technology.
technology, we believe are going forward. If I have to say, where do I think we will focus on the difference? I think it will be product obsession, product excellence, customer obsession, and differentiated talent, including in the field of technology. Just so that I wanted to share, I don't want to get into numbers, but we think the future is going to be different from the past. We think a transformation is undergoing the financial services sector. We genuinely believe the future is neither physical, not even physical. We think the future is at least digital, which is digital first, along with physical. AI and machine learning are going to question even that. If you ask me a 3-5-year view, financial services landscape is going to be wholly different.
I share, as I've said, both excitement and paranoia when I look at 3-5 years ahead.
Sir, just would request, you made a very good presentation last year, same time, on your 811 update. Would like that maybe in the half year, if you could present something or you could put on there for everybody, across all businesses.
What we currently are doing is, we are doing a yearly update of the 811, and currently at present, I think that's the idea, that we'll do a yearly update, which is a reasonably detailed update on what's happening there. We did that after our annual results in 2022 and 2023, and we'll do that again next year.
We also got to keep in mind that we want to remain competitive in terms of our strategy, and you have to wait for it to unfold rather than sharing it upfront.
Thank you.
Thank you. We have the next question from the line of Sameer Bhise from JM Financial. Please go ahead.
Yeah, hi. Thanks for the opportunity and congrats on the strong quarter. Just wanted to hear how would the board timelines on the leadership transition move here on? Secondly, in terms of the next three to five year journey, do any inorganic opportunities fit into the picture? That's all from my side. Thank you.
We are, I just wanted to share that we are on track for our leadership transition, and at an appropriate time, we will share with all of you as we go forward. On inorganic, we are always open. We have done inorganic in the past, and we will continue to do it if we believe that we are getting either product excellence or significant addition in customers, or a differentiated strategy based on geography and markets, or something which gives us a cutting edge through technology. We are very open to all of those, but we need to make sure that we evaluate that very carefully and closely, rather than rushing into a deal.
Okay, that's helpful. Thank you, and all the best.
Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Uday Kotak for closing comments. Over to you, sir.
I think I've shared my views at the beginning and also in the last couple of questions. I continue to be very optimistic about India's future, about the Indian financial services landscape, and about Kotak. I do believe Kotak will be and continue to be a player which will be differentiated in many areas, not for the sake of differentiation, but because we believe it adds value to our stakeholders. I see, actually Kotak having the ability and the resilience to change with the times as the times change. Particularly in the last 18 to 24 months, we have made a very strong beginning that, and I will assure you, we'll continue to nurture talent, both in terms of attracting talent externally as well as internal talent.
We see a long-term, huge, roadway out in front of us to see this as a multi-year and hopefully a multi-decade opportunity for growth. Thank you very much.
Thank you. On behalf of Kotak Mahindra Bank, that concludes this conference. Thank you for joining us. You may now disconnect your line.