UPDATE 2-India's Kotak Mahindra Bank joins rivals in warning of challenges ahead

(Adds background and comments from press briefing)

MUMBAI/BENGALURU, July 22 (Reuters) - Kotak Mahindra Bank Ltd reported a 32.7% jump in its first-quarter profit on Monday, but its results fell marginally shy of estimates and it became the third private-sector Indian bank in a row to sound a cautionary note about the slowing pace of domestic growth.

The lender, helmed by billionaire Uday Kotak who is one of Asia’s richest bankers, said its advances in the June quarter rose 18%, compared with a rise of 24% a year ago.

“The corporate loan book grew slowly in the June quarter,” said Jaimin Bhatt, chief financial officer of Kotak Mahindra Bank, at a press briefing following the bank’s results. “And on the retail front, we’ve seen negative growth in auto loans both on a year-on-year and quarter-on-quarter basis.”

A series of factors from distress in the rural economy due to a run of droughts in key agricultural belts, to a liquidity crunch in the shadow banking sector following the collapse of infrastructure lender IL&FS, has led to a rapid cooling in the domestic economy, presenting a challenge to Prime Minister Narendra Modi’s government as it begins its second term.

Dipak Gupta, joint managing director at Kotak Mahindra Bank, warned the small and medium enterprises segment continued to be a pain point.

“We’ve been cautious about the slowdown for some six to nine months and will continue to remain cautious,” said Gupta, adding that the bank was seeing some stress in its unsecured loan book, but this was “not at alarming levels”.

HDFC Bank, the largest private bank in the country, also warned of slower retail loan growth, in an analyst call on Saturday after announcing its results. The bank stated that the slowdown in the auto sector and stress in the agricultural space were hurting growth.

Following the warning, HDFC Bank’s stock on Monday closed at an over two-month low. Its warning came close of the heels of one from smaller rival RBL Bank, which also saw its stock plunge after it flagged risks to its asset quality and warned of a rise in bad loans.

Meanwhile, Kotak’s gross bad loans as a percentage of total loans came in slightly higher at 2.19% by the end of June, versus 2.14% at the end of the March quarter and 2.17% in the same period a year ago. The bank said it expected its credit cost to remain in the range of 50-60 basis points, as guided earlier.

The bank’s in Asia’s third largest economy have been dealing with a huge pile of stressed loans worth over $150 billion, with the state-run banks holding the vast majority of the bad debt.

The warnings from the private sector lenders like HDFC Bank and Kotak Mahindra Bank, which have been investor darlings, have amplified concerns around slowing growth and spooked investors.

India’s benchmark Nifty Index has fallen 6.25% after touching a lifetime high in early June, and the Nifty Bank Index ended down 1.63% on Monday. (Reporting by Chris Thomas and Derek Francis in Bengaluru, Nupur Anand in Mumbai; Editing by Euan Rocha, Rashmi Aich and David Evans)