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Discussion shifts away from loan growth to deposit accretion

Result Highlights

Asset quality: Gross slippage amounted to Rs 7.36bn (annualized slippage ratio of 1.1%) and recoveries and upgrades were higher at Rs 8.97bn

Margin picture: Standalone NIM improved 16 bps QoQ to 4.78% supported by low cost of funds and healthy CASA at 60.7% of total deposits

Asset growth: Advances grew 7.2%/21.3% QoQ/YoY driven on sequential basis by growth across loan segments except corporate loans, which were down -2.8% QoQ.

Opex control: Total opex increased 32.2%/6.2% QoQ/YoY, staff cost grew 1.1%/29.1% QoQ/YoY and other expenses grew 43.3%/1.7% QoQ/YoY

Fee income: Fee income rose 4.4%/14.9% QoQ/YoY, on account of higher distribution and syndication fee as well as general banking fees

Our view –Discussion shifts away from loan growth to deposit accretion

Our view –Discussion shifts away from loan growth to deposit accretion KMB settles for slightly lower NIM compared with ‘exceptional’ current level in search of balance sheet growth: There are some factors supporting NIM including the fact that KMB will rachet up SA growth. Additionally, unsecured retail is a small proportion of overall loan book and its share should rise. Also, the fixed rate loan book is a relatively small part of overall loan book. At the same time, despite a loan growth of 21% YoY, capital adequacy has inched up on YoY basis. The bank sees this as an opportunity to enhance market share, while adhering to risk-adjusted pricing. Management stated that there could be a contraction of 10-15 bps in NIM, presumably from the elevated quarterly level of 4.78%. Management also stated that 4.78% is an “exceptional” margin and a margin of 4.3- 4.6% would be regarded as healthy for a bank growing at the pace of KMB.

Various parts of the loan book continued to display a healthy growth trajectory, barring large corporate loans: Overall retail loan growth was 11% QoQ with virtually all subsegments growing in robust fashion. Unsecured segments outperformed somewhat within retail book, with credit card dues growing 13% QoQ and PL, BL and CD growing 18% QoQ. While SME loans grew 10% QoQ, corporate loans de-grew -3% QoQ, as KMB shed assets.

Overall deposit growthwas relatively muted at 2.1% QoQ with SA de-growth dragging at -1.1% QoQ: Management explained that SA balance growth has been muted as the bank has moved to lower rates but there is a plan to deepen hooks, which will lead to improved SA balance growth. The further clarified that there is no plan to hike SA rate. They added that the GOI agency business is set to take off from a small base. We maintain ‘Add’ rating on KMB with a revised price target of Rs 2023: We value the consolidated bank at 3.7x FY23 P/BV for an FY23E/24E RoE profile of 12.6/13.4%

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