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Asset quality: Gross slippages amounted to Rs 7.48bn (annualised slippage ratio of 1.0%) and recoveries and upgrades were healthy at Rs 8.74bn

Margin picture: NIM improved 30 bps QoQ to 5.47% aided by repricing of floating rate book

Asset growth: Advances grew 5.7%/22.9% QoQ/YoY driven on sequential basis by healthy growth across various retail loan segments and Corporate loans.

Opex control: Total opex grew 12%/30.2% QoQ/YoY, staff cost grew 4.5%/23.2% QoQ/YoY and other expenses grew 17.1%/35% QoQ/YoY

Fee income: Fee income grew 4.9%/23.5% QoQ/YoY, where the sequential growth was driven by Distribution and syndication fees

Our view – Issues with savings account book continue

CASA ratio has now declined from 60.7% as of March to 53.3% as of December owing to the behaviour of bulk SA customers: SA balances of ticket size in excess of Rs 1mn are tending to move out or move into the TD bucket. Furthermore, there has also been some impact due to non-replenishment of government money.

Loan growth continues to be healthy with Uday Kotak re-emphasizing that this is a key focus area: Corporate loans grew 6.8% QoQ even though the spread in this business is under pressure, something KMB seeks to avoid. Within retail, unsecured businesses enjoyed breath-taking sequential growth. PL+BL+CD (Personal Loans, Business Loans, Consumer Durables), Credit Cards and Retail Microfinance grew 10.2%, 15.9% and 20.1% QoQ, respectively

Management re-iterated its intention to focus on unsecured retail, which would help NIM, ceteris paribus: The share of unsecured retail, which is now 9.3% of loan book, is targeted to be in the mid-teens, which should be achieved by 4QFY24.

Asset quality outcomes remained well under control and management was comfortable in running down contingent provisions further: Provisions were Rs 1.49bn, up by 8.6% QoQ and against a provision write-back of Rs 1,317mn in the same quarter a year ago. There was some reversal of Covid provisions during the quarter. Excluding the reversals, the credit cost for the quarter amounted to 27 bps on annualised basis.

We maintain ‘Add’ rating on KMBwith an unchanged price target of Rs 2100: We value the standalone bank at 3.3x FY24 P/BV for an FY23E/24E/25E RoE profile of 12.0/13.4/14.2%. We assign a value of Rs 556 per share to the subsidiaries, on SOTP.

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