Rating Rationale
November 27, 2017 | Mumbai
Kotak Mahindra Bank Limited
Ratings Reaffirmed 
Rating Action
Rs.516 Crore Lower Tier-II Bonds (Under Basel II)* [Reduced from Rs.646 Crore] CRISIL AAA/Stable (Reaffirmed)
Rs.480.8 Crore Lower Tier-II Bonds (Under Basel II) [Reduced from Rs.620 Crore] CRISIL AAA/Stable(Reaffirmed)
Rs.1800 Crore Infrastructure Bonds CRISIL AAA/Stable (Reaffirmed)
Rs.250 Crore Upper Tier-II Bonds (Under Basel II) CRISIL AAA/Stable (Reaffirmed)
Fixed Deposits FAAA/Stable (Reaffirmed)
Rs.17000 crore Certificate of Deposits CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*Originally issued by erstwhile ING Vysya Bank
Detailed Rationale

CRISIL has withdrawn its rating on Rs.269.2 crore Lower Tier-II Bonds (under Basel II) of Kotak Mahindra Bank Ltd (KMBL; part of the Kotak group) issue since there was no outstanding against these facilities. Ratings on the other debt instruments and fixed deposits have been reaffirmed at 'CRISIL AAA/FAAA/Stable/CRISIL A1+'.
The ratings continue to reflect the Kotak group's strong capitalisation, healthy asset quality, and comfortable earnings.

Analytical Approach

For arriving at the ratings, CRISIL has combined the financial and business risk profiles of KMBL and KMBL's other subsidiaries. This is because all the entities, collectively referred to as the Kotak group, have extensive business and operational linkages, and same senior management and brand. Effective April 1, 2015, ING Vysya Bank has been merged with KMBL.

Key Rating Drivers & Detailed Description
* Strong capitalization: The Kotak group has maintained its strong capital position. Absolute networth increased to Rs 38,491 crore as on March 31, 2017, from Rs 33361 crore as on March 31, 2016 (Rs 46,975 crore as on September 30, 2017). Tier-I capital adequacy ratio (CAR) and overall CAR were healthy, at 16.5% and 17.2%, respectively, as on March 31, 2017 (18.6 % and 19.2%, respectively, as on September 30, 2017). The bank raised Rs 5,803 crore through a Qualified Institutions Placement (QIP) issuance in the quarter ended June 30, 2017. Networth coverage for net non-performing assets (NPAs) was also comfortable at 21.2 times as on March 31, 2017 (23.1 times as on September 30, 2017). Capitalization of the other fund-based Kotak group entities is also comfortable with the gearing of Kotak Mahindra Prime Ltd and Kotak Mahindra Investments Ltd at 5.1 times and 6.3 times, respectively, as on March 31, 2017 (5.4 times and 6.0 times, respectively, as on September 30, 2017).

CRISIL believes the Kotak group's capitalisation will continue to be backed by steady internal cash accrual, and will remain strong to support growth initiatives over the medium term.
* Healthy asset quality: The Kotak group has demonstrated its ability to maintain asset quality through cycles and its management is proactive in handling potential stress in the lending portfolio. While NPAs and restructured assets have increased post-merger of erstwhile ING Vysya, they remain comparable with peers in the same rating category. The group's gross NPAs were 2.3% as on March 31, 2017 (2.1% as on March 31, 2016 and 2.1% as on September 30, 2017). The quantum of restructured standard advances at the bank was low at 0.07% of net outstanding advances as on March 31, 2017 (0.26% as on March 31, 2016 and 0.04% as on September 30, 2017). Top wholesale advances are also of a low-risk nature. CRISIL believes the Kotak group's stringent underwriting standards, strong risk management systems and processes, and rigorous collection measures will keep asset quality healthy over the medium term.
* Comfortable Earnings: The Kotak group has comfortable earnings, with return on assets (RoA) at 1.95% for fiscal 2017 (1.91%, annualized, for half year ended September 30, 2017). RoA has improved from 1.55% in fiscal 2016 (dipped because of few merger-related one-off costs and elevated credit costs on account of the acquired portfolio). The group's business is diversified across financial services, ensuring a healthy mix of fund- and fee-based revenue streams. Over the past few years, RoA has become more aligned with lending businesses as this segment accounts for around 80% of profit, thereby providing stability to earnings. Over the medium term, as the business benefits from the merger flow in and as credit costs are normalised, profitability of the lending business is expected to return to previous levels. With continued traction in the capital markets-related businesses, and steady profitability of the insurance business, outlook for the Kotak group's earnings profile remains comfortable.
Outlook: Stable

CRISIL believes the Kotak group will report steady growth in its lending business, while maintaining healthy asset quality and strong capitalisation, over the medium term. Earnings will continue to benefit from diversified business risk profile. The outlook may be revised to 'Negative' if the group's asset quality weakens, resulting in decline in earnings and capitalisation.

About the Group

KMBL is the flagship company of the Kotak group and has diversified operations covering commercial vehicle financing, consumer loans, corporate finance, and asset reconstruction. Through its subsidiaries, the bank is engaged in investment banking, equity broking, securities-based lending, and car finance. KMBL was reconstituted as a commercial bank from a non-banking financial company (NBFC) in fiscal 2003 to provide a more comprehensive range of financial services. Effective April 1, 2015, ING Vysya Bank was merged with KMBL and the integration process has been completed.

Other than KMBL, the key operating companies of the Kotak group are Kotak Mahindra Prime Ltd (car financing), Kotak Mahindra Capital Company (investment banking), Kotak Securities Ltd (retail and institutional equities broking, and portfolio management services), Kotak Mahindra Investments Ltd (commercial real estate lending and securities-based lending) and Kotak Investment Advisors Ltd (alternate assets space). The group also operates in the life and general insurance business through Kotak Mahindra Old Mutual Life Insurance Ltd and Kotak Mahindra General Insurance Ltd. It is also present in the asset management business through Kotak Mahindra AMC and Trustee Company Ltd, and recently launched Kotak Infrastructure Debt Fund. The acquisition of BSS Microfinance Pvt Ltd (BSS), a NBFC-MFI, was completed during the quarter ended September 30, 2017.
The Kotak group's profit after tax (PAT) was Rs 4,940 crore on total income of Rs 33,905 crore for fiscal 2017, against Rs 3459 crore and Rs 27,975 crore, respectively, for fiscal 2016. For the half year ended September 30, 2017, Kotak group reported PAT of Rs 2,788 crore on total income of Rs 17,758 crore, against Rs 2,270 crore and Rs 16,282 crore, respectively, for the corresponding period of the previous year.

Key Financial Indicators
As on / for the half year ended September 30   2017 2016
Total Assets Rs crore 3,04,883 2,49,294
Total income Rs crore 17,758 16,282
Profit after tax Rs crore 2788 2270
Gross NPA % 2.1 2.2
Overall capital adequacy ratio % 19.2 17.3
Return on assets (annualized) % 1.91 1.86

Any other information
On October 13, 2017, KMBL acquired the 26% stake owned by its joint venture partner Old Mutual Plc, UK in Kotak Mahindra Old Mutual Life Insurance Ltd for Rs 1,293 crore. With this, Kotak Mahindra Old Mutual Life Insurance Ltd has become a 100% subsidiary of KMBL.

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of
Rate (%)
Size (Rs.Cr)
rating with Outlook
INE166A08016 Lower Tier II bonds* 15-Jul-08 10.40% 14-Jul-18 150.00 CRISIL AAA/Stable
INE166A08024 Lower Tier II bonds* 31-Jan-09 9.65% 30-Jan-19 60.00 CRISIL AAA/Stable
INE166A08032 Lower Tier II bonds* 14-Dec-12 9.9% 14-Dec-22 306.00 CRISIL AAA/Stable
INE237A08866 Lower Tier II bonds 9-Jul-07 10.25% 9-May-18 10.80 CRISIL AAA/Stable
INE237A08890 Lower Tier II bonds 7-Apr-11 9.31% 7-Apr-21 150.00 CRISIL AAA/Stable
INE237A09153 Lower Tier II bonds 9-Jul-07 10.25% 9-May-18 25.00 CRISIL AAA/Stable
INE237A08791 Lower Tier II bonds# 14-Nov-06 9.10% 14-Apr-17 10.00 CRISIL AAA/Stable
INE237A08809 Lower Tier II bonds# 20-Nov-06 9.10% 20-Apr-17 2.10 CRISIL AAA/Stable
INE237A08817 Lower Tier II bonds# 6-Dec-06 9% 6-May-17 50.00 CRISIL AAA/Stable
INE237A08825 Lower Tier II bonds# 25-Jan-07 9.50% 25-Apr-17 4.50 CRISIL AAA/Stable
INE237A08833 Lower Tier II bonds# 6-Feb-07 9.50% 6-May-17 7.10 CRISIL AAA/Stable
INE237A08841 Lower Tier II bonds# 21-Feb-07 9.50% 21-May-17 2.30 CRISIL AAA/Stable
INE237A08858 Lower Tier II bonds# 16-Mar-07 10.15% 16-May-17 60.00 CRISIL AAA/Stable
INE237A09112 Lower Tier II bonds# 14-Nov-06 9.10% 14-Apr-17 10.00 CRISIL AAA/Stable
INE237A09120 Lower Tier II bonds# 20-Nov-06 9.10% 20-Apr-17 5.00 CRISIL AAA/Stable
INE237A09138 Lower Tier II bonds# 25-Jan-07 9.50% 25-Apr-17 5.00 CRISIL AAA/Stable
INE237A09146 Lower Tier II bonds# 21-Feb-07 9.50% 21-May-17 1.00 CRISIL AAA/Stable
INE237A08874 Upper Tier II Bonds## 30-Aug-07 9.95% 30-Aug-22 31.00 CRISIL AAA/Stable
INE237A08882 Upper Tier II Bonds## 7-Sep-07 10.30% 7-Sep-22 100.00 CRISIL AAA/Stable
INE237A09161 Upper Tier II Bonds## 30-Aug-07 9.95% 30-Aug-22 5.00 CRISIL AAA/Stable
INE237A08908 Infrastucture Bonds 12-Aug-14 9.36% 12-Aug-21 262.00 CRISIL AAA/Stable
INE237A08924 Infrastucture Bonds 14-Jan-15 8.72% 14-Jan-22 500.00 CRISIL AAA/Stable
INE237A08932 Infrastucture Bonds 30-Mar-15 8.45% 30-Mar-22 200.00 CRISIL AAA/Stable
NA Lower Tier II bonds** NA NA NA 138.00 CRISIL AAA/Stable
NA Infrastucture Bonds** NA NA NA 838.00 CRISIL AAA/Stable
NA Upper Tier II Bonds ** NA NA NA 114.00 CRISIL AAA/Stable
NA Fixed Deposits NA NA NA NA FAAA/Stable
NA Certificate of Deposits NA NA 7-365 days 17000 CRISIL A1+
*Originally issued by erstwhile ING Vysya Bank
**Yet to be issued
#Awaiting independent confirmation of redemption before withdrawing ratings on these facility
##Call option has been exercised; awaiting independent confirmation of redemption before withdrawing ratings on these facility
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Certificate of Deposits  ST  17000  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Fixed Deposits  FD  FAAA/Stable    No Rating Change    No Rating Change    No Rating Change    No Rating Change  FAAA/Stable 
Infrastructure Bonds  LT  1800  CRISIL AAA/Stable    No Rating Change    No Rating Change    No Rating Change  04-08-14  CRISIL AAA/Stable  -- 
Lower Tier-II Bonds (under Basel II)  LT  996.8  CRISIL AAA/Stable    No Rating Change    No Rating Change    No Rating Change  04-08-14   CRISIL AAA/Stable  CRISIL AA+/Stable 
Upper Tier-II Bonds (under Basel II)  LT  250  CRISIL AAA/Stable    No Rating Change    No Rating Change    No Rating Change  04-08-14   CRISIL AAA/Stable  CRISIL AA+/Stable 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Links to related criteria
Rating Criteria for Banks and Financial Institutions
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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