Kotak Mahindra Bank Ltd Quarterly Results Q1 FY 26 stock analysis

Home » Core Investor Group » Kotak Mahindra Bank Ltd – Q1FY26 Result Update

Sector Outlook: Positive

Kotak Mahindra Bank Q1FY26 – Mixed Quarter; Steady Growth Offset by Margin Pressure and Elevated Provisions

The bank reported Net Interest Income (NII) of ₹7,259 crores for Q1FY26, reflecting a marginal decline of 0.3% quarter-on-quarter (QoQ) but a 6.1% year-on-year (YoY) increase, as steady loan book expansion helped offset mild compression in margins. Pre-Provision Operating Profit (PPOP) stood at ₹5,564 crores, registering a growth of 1.7% QoQ and 5.9% YoY. However, provisions rose sharply to ₹1,208 crores, up 32.9% QoQ and 109.0% YoY, indicating elevated provisioning needs during the quarter. As a result, adjusted net profit (excluding KGI divestment) came in at ₹3,282 crores, down 7.6% QoQ and 6.7% YoY.

Profitability metrics saw some pressure, with Return on Assets (ROA) declining to 0.48%, down 6 basis points (bps) QoQ and 57bps YoY, primarily due to higher provisioning and the impact of divestment-related adjustments. Net Interest Margin (NIM) also declined to 4.65%, down 32bps QoQ and 37bps YoY, amid continued margin pressures from interest rate cuts.

On the balance sheet front, gross advances rose to ₹4,44,823 crores, marking a 4.2% QoQ and 14.1% YoY increase, supported by robust disbursements in both consumer and commercial lending segments. Gross deposits reached ₹5,12,838 crores, up 2.8% QoQ and 14.6% YoY, driven by strong accretion in term deposits and a well-diversified deposit base. The Capital Adequacy Ratio (CAR) remained solid at 23.7%, up 150bps QoQ and 90bps YoY, reflecting the bank’s healthy capital position. However, the CASA ratio moderated to 40.9%, down 210bps QoQ and 250bps YoY, though it remains competitive relative to peers.

Asset quality remained largely stable, with Gross NPA (GNPA) inching up to 1.48%, an increase of 6bps QoQ and 9bps YoY, while Net NPA (NNPA) was at 0.34%, up 3bps QoQ but down 1bp YoY, indicating ongoing improvement in net stressed assets.

Key Concall Highlights

Asset quality saw some strain during Q1FY26, primarily due to higher credit costs from the Microfinance (MFI) and Commercial Vehicle (CV) portfolios. Provisions rose sharply by 109% year-on-year to ₹1,208 crores, pushing the annualized credit cost to 0.93%, up from 0.64% in the previous quarter. While the provision coverage ratio remains robust at 77%, the increase in provisioning reflects a cautious stance in response to near-term stress in select retail segments. Gross NPA (GNPA) edged up to 1.48%, and Net NPA (NNPA) rose slightly to 0.34%, indicating modest deterioration in asset quality. Fresh slippages increased to ₹1,812 crores from ₹1,488 crores in Q4, largely driven by stress in unsecured retail, MFI, and CV segments. That said, the bank highlighted improved performance in its newer retail book—originated over the past 3–4 quarters—across MFI, personal loan (PL), and CV segments.

On the growth front, Kotak delivered strong double-digit growth in both advances (+14% YoY) and end-of-period deposits (+15% YoY), reflecting continued franchise strength. Loan growth was broad-based, led by secured retail and corporate segments, while the share of unsecured retail loans declined to 9.7%, reflecting a prudent approach in a volatile macro environment. Term deposits grew 19% YoY, supporting overall deposit growth, while the CASA ratio remained healthy at 40.9%. Average deposit growth of 13% YoY supported the expansion in advances, keeping the credit-to-deposit ratio at a comfortable 86.7%.

Margins are likely to remain under pressure in the near term due to the delayed transmission of repo rate cuts into asset yields, as loan repricing continues in a staggered manner. While the bank reduced its savings account interest rate to 2.5% from an average of 3.25% in Q1, the full benefit of this reduction is expected to materialize from Q2 onwards. The cost of funds hasn’t declined significantly yet, but management expects margin pressure to gradually ease over the next 3–4 quarters as deposit repricing catches up. In addition to repo-linked compression, net interest margins (NIMs) were affected by an unfavorable funding mix—particularly the CASA ratio decline—and a shift in the loan book towards secured lending.

On the operating expense front, the bank continues to invest more in technology than in payroll, with elevated costs driven by marketing spends on the 811 platform. These investments, however, are expected to be income-accretive over time as digital acquisition and engagement improve.

Valuation and Outlook

Kotak Mahindra Bank, India’s 4th largest private sector bank, reported a mixed performance in Q1FY26. While loan growth remained strong, outpacing industry averages and capital levels stayed solid, increased provisions and margin compression affected profitability. NIMs declined during the quarter due to deposit repricing and the delayed effect of the rate cut cycle, with further impact expected in Q2FY26. Asset quality showed early signs of stress, especially in the retail CV portfolio. Slippages and credit costs increased, though the bank indicated that stress in the MFI segment has peaked and new disbursements are returning cautiously. On a positive note, a favourable monsoon outlook supports the agricultural portfolio, and a shift toward secured lending (LAP & home loans) continues to support growth. The CASA ratio fell, reflecting pressure on low-cost deposits, but remains among the best across large private banks. Overall, Kotak’s Q1FY26 results demonstrate a steady business base amid short-term challenges. Maintaining strong credit growth while managing NIMs and asset quality will be crucial. Going forward, asset quality, especially in MFI segment, will remain a key monitorable.