Since our last ‘accumulate’ call on Kotak Mahindra Bank (KMB) in August 2025 at around ₹399 per share, the stock has stayed flat. This is largely to do with the stock’s FY26 financial results, which were ordinary. The profit (before one-offs) of the standalone bank grew 2 per cent over FY25 and that of the group remained flat. This was largely due to margin compression and certain asset-quality issues at the bank. The bank accounts for three-fourths of the consolidated net worth. Net interest margin (NIM) declined from 4.96 per cent for FY25 to 4.6 per cent for FY26. Provisions were elevated and recorded a growth of 18 per cent year on year. Performance of key subsidiaries also was not remarkable enough to write home about.

However, by Q4 FY26, with tighter underwriting, the bank has manoeuvred those asset-quality concerns well and they are largely behind. Collection efficiency has improved in the impacted segments of microfinance, credit cards and retail commercial vehicles and going ahead, the bank is confident to scale these products once again. Asset quality is expected to be stable in FY27, save for any surprises in store, driven by trade disruptions or weather-related causes in SME, agri and tractor finance segments. These portfolios are performing well at the moment, though.

NIM could see slight decline in FY27 too, as the bank is pursuing longer-tenor term deposits at the cost of margin. However, there are a few levers to offset this, as detailed here. The upcoming ECL (expected credit loss) framework from FY28 is likely to impact the bank’s net worth by 2 per cent, per the management.

These meant the group’s price-to-book value (P/B) multiple shrank from 2.5x at the time of our earlier call to about 2.1x now — 1.5 standard deviations below the five-year mean of 3.1x. The accompanying infographic contains the SOTP (sum-of-the-parts) price of the stock, worked with conservative assumptions — a multiple of just 2x has been ascribed for the bank (vs 2.5x in our earlier call). At this price, the stock appears fairly valued. However, going forward, given credit costs could remain benign in the backdrop of good balance sheet momentum, shareholders can expect good book value accretion. Hence long-term investors can accumulate the stock.

FY26 performance

The standalone bank first. In FY26, KMB’s advances grew 16.2 per cent year on year, in-line with the banking system. It gained market share in deposits though, growing at 14.7 per cent, against the system’s 13.5 per cent. CASA balances deserve a mention. They grew 15.5 per cent, higher than private banking peer HDFC’s 12.3 per cent and ICICI’s 10.4 per cent. CASA ratio was resilient at 43.3 per cent vs 43 per cent as of FY25-end.

Most segments of the loan book recorded healthy growth except for three: Unsecured personal loans (3 per cent), credit cards (-8 per cent) and microfinance (-8 per cent). These were the ones with asset-quality concerns as said above and notably, they carry relatively higher yields, padding NIM. They largely form the unsecured book of the bank, which now stands at 8.9 per cent of the loan book from 10.5 per cent, a year ago.

However, things are looking up. The personal loan book has been growing sequentially for the past couple quarters. After quarter-on-quarter (q-o-q) declines in Q1 and Q2 FY26, microfinance book arrested degrowth in Q3 and grew sequentially in Q4. Credit cards shrunk in Q1-Q3, but remained flat in Q4 on a q-o-q basis. The bank had been revamping its credit card line-up and now that it is done, the portfolio is ready for scaling up. Slippages (1.6 per cent of advances in Q1 FY26) and credit cost (0.9 per cent of advances in Q1 FY26) improved through the quarters to healthy levels of 0.8 per cent and 0.4 per cent respectively, as of Q4 FY26. GNPA ratio stands at 1.2 per cent down from 1.4 per cent a year ago. The management is, however, watchful of these segments, in addition to SME, Agri and Tractor finance, as they are the most vulnerable in case of a macro stress.

FY26 standalone profit grew a marginal 2 per cent (before one-offs) and RoA slid to 1.97 per cent from 2.2 per cent in FY25. This was primarily driven by an 18 per cent rise in provisions (largely from unsecured book), loss of fee income from credit cards and NIM compression of about 50 bps (4.6 per cent for FY26 from 4.96 for FY25). KMB’s NIM decline (about 30 bps) is greater than peers HDFC and ICICI, who have gone through this rate transmission cycle with negligible impact on NIMs (Q4 FY26 vs Q3 FY25). Poor growth in the unsecured book is the key reason.

NIM push and pulls

Going into FY27, NIM could further contract but gradually, owing to higher rates offered for longer-tenor term deposits (longer than the bank’s current average tenor of 9-12 months) than competitors. This is KMB’s strategy to navigate the current deposit drought. However, there are levers to offset this. One, the restart in unsecured book could bring in higher yields. Two, good momentum is seen in low-cost CASA deposits as mentioned above. Any increment to the CASA ratio will aid propping margin.

Subsidiaries

A handful of wholly-owned subsidiaries account for the rest of the group’s net worth. Capital market subsidiaries were impacted by FII outflows, geopolitics, trade disruption and a general weakness in the market. Kotak Securities (brokerage) and Kotak Mahindra Capital (investment bank) recorded no profit growth. Kotak AMC managed double-digit profit growth (11 per cent) and an AUM expansion of 22 per cent.

Net profit of vehicle finance subsdiary Kotak Mahindra Prime, too, did not grow owing to marked-to-market losses. Its loan book grew 12 per cent. Life Insurance subsidiary’s embedded value rose 9.2 per cent.

Published on June 6, 2026