Private banks like Kotak Bank and RBL Bank are grappling with the challenges posed by rising defaults in the microfinance segment. Despite reporting an overall increase in profits, both banks revealed significant stress in this sector during their quarterly earnings announcements on Saturday.
Kotak Bank’s consolidated net profit for the quarter ending December 2024 rose by 10% to ₹4,701 crore, compared to ₹4,265 crore in the same period last year. On a standalone basis, the bank’s net profit also grew by 10% to ₹3,305 crore. However, its microfinance subsidiary, BSS, faced a notable setback, reporting a loss of ₹50 crore for the quarter, a sharp contrast to the ₹104 crore profit it posted in the corresponding period last year.
RBL Bank faced a sharper decline, with its net profit plummeting by 86% to ₹33 crore. The bank’s provisions doubled to ₹1,180 crore, including ₹414 crore allocated to its joint liability group (JLG) loans, which are small loans provided to groups of borrowers.
Kotak Bank MD & CEO Ashok Vaswani acknowledged that microfinance is facing a sector-wide issue, although other personal loan segments remain stable. He expressed optimism that the deterioration rate would stabilize within the next two to three quarters.
Adding to the growing concern, IndusInd Bank recently sold ₹1,573 crore worth of non-performing microfinance loans to manage the rising stress in the sector. The situation underscores the mounting challenges for private banks in navigating the volatile microfinance landscape.
