Kotak Mahindra Bank witnessed a significant drop in its share value on Monday following the release of a lackluster financial performance for the April–June quarter. The bank’s stock plunged by 6.5%, reaching an intraday low of ₹1,977.20 on the Bombay Stock Exchange (BSE). By around 9:43 am, the share price was still down 6.48%, trading at ₹1,987.35.
This sharp decline came in response to the bank posting a 7% year-on-year decrease in its standalone net profit, which fell to ₹3,282 crore. The numbers failed to meet analysts' expectations, despite the lender showcasing consistent growth in its core lending activities. In particular, net interest income (NII)—a crucial indicator of banking profitability—grew by 6% to ₹7,259 crore in the first quarter of FY26, up from ₹6,842 crore a year earlier. However, this increase was insufficient to offset other financial pressures.
One major reason for the apparent decline in profitability is the absence of a significant one-time gain that had boosted the previous year’s results. In the April–June quarter of the last financial year, the bank had recorded an extraordinary profit due to the sale of its general insurance business, which had inflated its net profit to ₹6,250 crore. This time around, such gains were missing, as Kotak General Insurance ceased being a wholly owned subsidiary on June 18, 2024. It has since been reclassified as an associate, meaning its financial performance no longer directly contributes to Kotak Mahindra Bank's consolidated earnings.
Despite the drop in net profit, the bank’s operational strength remained intact. Its net advances surged 14% year-on-year, reaching ₹4.45 lakh crore, while average total deposits rose by 13%, amounting to nearly ₹4.92 lakh crore. The corporate and secured retail lending segments were the main drivers of this loan growth, although performance in unsecured lending remained relatively weak, contributing to some concerns about profitability.
From an investor's perspective, the crucial question is whether to buy, sell, or hold. Brokerage firm Antique attributed the earnings miss to a sharper-than-expected compression in margins and increased credit costs. Margins came under pressure primarily because of a rapid repricing of loans linked to the External Benchmark Lending Rate (EBLR) and a shrinking share of high-interest unsecured loans.
Asset quality also saw minor deterioration. The bank’s Gross Non-Performing Asset (GNPA) ratio inched up to 1.48%, compared to 1.39% in the same period last year. Notably, signs of stress were evident in the microfinance and retail commercial vehicle loan portfolios, raising some red flags for analysts.
Adding to the pressure, Kotak Mahindra Bank also increased its provisioning to cover potential bad loans during the quarter. These provisions further affected the bank’s bottom line. Combined with narrowing margins, this cautious approach has led several market experts to scale back their short-term forecasts for the stock.
Antique, for instance, has revised its earnings estimates for FY26 and FY27 down by 6% and 3%, respectively. However, the firm still maintains a neutral valuation, noting that the stock trades at a fair 2.2 times its expected one-year forward price-to-book ratio. Moreover, key return metrics remain solid, with Return on Assets (RoA) projected at 2.2% and Return on Equity (RoE) estimated to hover around 14% through FY26 to FY28.
According to data from LSEG, at least eight analysts have adjusted their price targets downward after the Q1 results, pulling the median price target to ₹2,340 from ₹2,350 a month ago.
Despite the immediate market reaction reflecting disappointment, the long-term outlook for the bank remains cautiously optimistic. Analysts believe that if the bank can revive its performance in unsecured lending, it could help restore momentum in the upcoming quarters. The strength in its secured lending and deposit base also suggests that Kotak Mahindra Bank remains well-positioned for future growth.
