Kotak Bank sets aside Rs 86 cr for derivatives

Fourth-quarter net profit rises 41% to Rs 240 crore on interest and fee-based income.

Kotak Mahindra Bank has made a provision of Rs 86crore during the fourth quarter ended March 31, 2008, for potentiallosses from the foreign exchange derivative transactions of its clients.

The Mumbai-based private bank said todaythat its customers have made a mark-to-market loss of Rs 612 crore ason May 8 this year on account of such transactions. The bank does nothave exposure to small and medium enterprise clients.

Derivatives are financial instruments usedto hedge risk or for speculation. Their value is based on currencies,stocks, bonds, loans and commodities, or linked to specific events suchas changes in foreign-exchange rates. Marked-to-market refers to thebank's writedowns in the value of such investments based on currentprices.

Meanwhile, the bank posted a 41 per centincrease in its consolidated net profit for the fourth quarter on theback of a robust growth in interest and fee income. Total income wentup by 31 per cent to Rs 1,863 crore.

For the full year, net profit jumped by 84 per cent to Rs 991 crore and income grew by 76 per cent to Rs 7,549 crore.

On a standalone basis, net profit went up by86 per cent to Rs 69.2 crore in the fourth quarter. Total income roseby 54 per cent to Rs 803 crore and the net interest income improved toRs 390.7 crore from Rs 195.7 crore a year ago, Kotak Vice-Chairman andManaging Director Uday Kotak said.

Deposits rose by 49 per cent to Rs 16,005crore.. The share of low cost deposits — current accounts plus savingsdeposits (CASA) — improved to 27 per cent from 22 per cent a year ago.The bank plans to raise the share of CASA to over 40 per cent, he said.
Advances were up 42 per cent to Rs 15,552crore. The bank has estimated 30 per cent growth in its assets during2008-09. It will add 100 branches to take the total number to over 275by March, 2009.

Referring to the turmoil in the globalfinancial markets, Kotak said Indian companies, which raised fundsabroad in the past, will now be tapping domestic banks for funds. "Oneshould change tack," Kotak said. "It is back to the basics of thespreads business, that's the key which you would see in the next 12months."

The bank's capital adequacy ratio (CAR), onstandalone basis, was 18.65 per cent at the end of March 31, 2008 — upfrom 13.46 per cent a year ago.

Kotak said, "Going ahead, the capital has tobe used judiciously. The capital adequacy on a consolidated basis isabove 20 per cent. This is a significant buffer in volatile times."

The Kotak Mahindra Bank scrip fell 5.7 per cent to Rs 738.55 on the Bombay Stock Exchange.
-Business Standard.Com

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