New Delhi: Kotak Mahindra Bank, known for its cautious attitude to unsecured lending, appears to have shed the label as this sector now accounts for 35.2% of its Q1 loan book, up 81.0% year over year.

The city-based bank stated on Saturday that its net income increased by 26% to Rs 2,071 crore in the June quarter, helped by record margins and a sharp decline in bad loans that helped to offset the Rs 8,500 crore impact to the government’s coffers.

Overall, the bank recorded a 3% increase over the March 2022 quarter results, when its loan book was at Rs 2,71,254 crore, and a 29% year-over-year gain in advances during the reporting quarter at Rs 2,80,171 crore from Rs 2,17,447 crore. However, the unsecured segment, which on an annualised basis increased by 81 percent to Rs 22,085 crore in Q1, makes up up to 35.2% of these incremental advances.

However, what’s notable is that it has almost no bad loans in this market because the bank consistently writes off any stressed accounts because of the 90-day buffer for failure. Even so, gross NPAs (Non-Performing Assets) decreased to 2.24 percent from 3.56 percent, and net bad loans dropped to 0.62 percent in the quarter from 1.28 percent.

The fact that 22,085 crore of the additional Rs 62,724 crore in loan sales during the quarter are unsecured loans, or lending without security, is more significant. This is 7.9% of the total outstanding for the fourth largest lender, which was only 5.6% a year earlier, when looking at the asset base as a whole.

Credit card debt, personal and corporate loans, retail microloans, and other advances without collateral are all examples of unsecured loans.

Comparing the unsecured book over a 12-month period, it increased at a significantly higher rate of 81 percent in June 2022 and currently accounts for up to 35.2% of the incremental loan sales in the quarter. In June 2021, the unsecured book was only 5.6% at Rs 12,221 crore.

Credit cards, together with personal and corporate loans, funding for consumer durables, and other factors, are the key drivers of this quicker increase.

According to the earnings statement, credit card outstanding increased by 22% to Rs 6,819 crore from Rs 3,848 crore annualised and from Rs 5,572 crore in March 2022, while personal and business loans as well as consumer durables increased by 15% to Rs 11,616 crore from Rs 6,561 crore and from Rs 10,071 crore.

Retail microfinance actually experienced the fastest increase, increasing by 101% in the quarter to Rs 3,650 crore from Rs 1,812 crore annualised and from Rs 3,060 crore in Q4 FY22, registering a 19% rise.

Dipak Gupta, joint managing director, explained the reasoning behind the emphasis to PTI on Sunday. He noted that while the bank’s unsecured books experienced challenges three years ago, this portfolio only made up approximately 7.5% of the overall assets at the time.

Since that time, the bank has gradually reduced this portfolio throughout the pandemic years when the stress grew, and it decreased to 5.6% in Q1 FY22.

So, going back to 7.9 per cent now is “effectively reaching the pre-stress level only and I will be comfortable if it scales to 15 per cent or so. Even at that level, ours will still be amongst the lowest unsecured assets”, Gupta said.

When asked if, at this rate, the unsecured book will reach 10% of the total assets by March 2023, he responded, “Maybe, but probably by June.”