India's Kotak Mahindra Bank, RBL Bank slump as loan stress hurts Q2 earnings
MUMBAI, Oct 21 (Reuters) -Shares of India's Kotak Mahindra Bank KTKM.NS and RBL Bank RATB.NS slumped on Monday as the lenders reported a jump in bad loans that hurt their second-quarter profit and margins, a trend that could continue for a few more quarters.
Kotak's shares slid as much as 6% to a near two-month low in early trade, while those of RBL tumbled 14% to their lowest since June 2023.
Kotak's slippages, or the proportion of good loans turning bad, jumped 38% on-quarter for the July-September period, while mid-sized lender RBL's slippages were 10.26 billion rupees, almost doubling from a year ago and up nearly43% from the prior quarter.
The pressure was mainly in the credit card and microfinance businesses and is expected to linger for a few more quarters, the lenders said over the weekend when theyreported their results.
" ... We've seen some stress in the microfinance industry as well as some over-leveraging of customers, which reflects in personal loans and credit cards," Kotak CEO Ashok Vaswani said on a media call.
Around 30%-40% of Kotak's slippages came from the credit card business, Vaswani said.
The quality of Indian lenders' unsecured loans is showing signs of stress due to continuing pressure on cash flows in certain end-borrower segments, India Ratings said earlier this month.
The deterioration in asset quality weighed on the lender's profit and margins. Kotak's second-quarter net profit missed expectations, while RBL Bank's fell 24% on-quarter, with both companies reporting lower net interest margins.
PhillipCapital analysts expect Kotak's earnings growth will remain muted considering the margin pressure and elevated credit costs. They cut their rating on the stock to 'neutral' from 'buy'.
Ambit Capital analysts expect similar challenges to limit RBL Bank's loan growth to 16% for the next three years and shrink margins by 50 basis points. They reiterated their "sell" call on the stock.
Kotak's shares were last down 5.1%, while RBL's were down nearly 13%.
Reporting by Siddhi Nayak; Editing by Savio D'Souza
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