Kotak Mahindra Bank’s tractor financing remains flat amid rural challenges

Ekambaram said Kotak Bank’s micro-credit segment sank by 4% in Q2FY25 and is predicted to slow down in the current quarter.

Kotak Mahindra Bank’s tractor financing business remained stagnant in the first half of FY25 after facing an 8% decline in the previous fiscal year.

The bank attributed the flat growth to challenges arising from erratic climatic conditions and a slower rural economy, said Shanti Ekambaram, Deputy Managing Director and Whole Time Director at Kotak Mahindra Bank, during the bank’s Q2 FY25 conference call.

Outlook for Tractor Financing

Despite the slow start, Kotak Mahindra Bank continues to focus on the tractor financing segment, anticipating a recovery in demand during the second half of FY25. Ekambaram pointed to the government’s push for rural infrastructure as a key driver for the expected revival.

“We also expect cash flow in the rural and semi-urban areas to improve and hope to see better collection efficiencies in tractor financing in H2,” she added.

Micro-Credit Segment Faces Slowdown

The bank’s micro-credit segment declined by 4% in Q2 FY25, with the management expecting further slowdown in the current quarter.

This was attributed to over-leveraged borrowers and weaker rural household incomes, which led to increased delinquencies. Kotak Mahindra Bank anticipates the slowdown in this segment will continue for the next two to three quarters.

Q2 FY25 Financial Performance

Kotak Mahindra Bank reported a net profit of ₹3,344 crore for Q2 FY25, marking a 4.8% year-on-year (YoY) increase.

The bank’s net interest income (NII) rose by 11% YoY to ₹7,020 crore in the July-September quarter. However, the bank’s net interest margin (NIM) moderated to 4.91% compared to 5.22% a year ago, reflecting the impact of the ongoing challenges in the rural economy.

Despite the current headwinds, Kotak Mahindra Bank remains cautiously optimistic about a recovery in rural demand in the coming quarters.