Kotak Mahindra Bank’s standalone March quarter (Q4FY26) results were buttressed by nearly one-third fall in credit cost to ₹536 crore. This was made possible by a sharp fall in fresh slippages (incremental bad loans).
Lower credit costs primarily aided net profit growth of 13% year-on-year to ₹4,026 crore, even though core pre-provisioning operating profit (PPOP) grew modestly by 6.5% to ₹5,803 crore.
Net interest margin (NIM) rose sequentially by 13 basis points (bps) to 4.67%. However, Kotak Bank’s management clarified in the earnings conference call that the Q4 NIM is higher owing to the benefit of fewer days last quarter, adjusting for which, the margin is at Q3’s level of 4.54%. One basis point is one-hundredth of a percentage point.
Management also tried to assuage analysts' concerns about the increase in the bank’s term deposit rates and the consequent impact on NIM. The deposit rate has been raised for longer periods, and its adverse impact on margins will be mitigated with the future growth in current account and savings account (CASA) deposits. Stability in NIM is important for higher net interest income growth, as the bank has done well in increasing its total assets by 13% to ₹7.83 trillion in FY26.
Credit growth
On the asset side, the 16% on-year growth to ₹4.96 trillion in advances was led by corporate banking, small and medium-sized enterprises (SME), and consumer banking. Consumer banking lending growth was achieved through a safer, secured route, but with a low-interest-rate segment of home loans and loans against property. Higher-yielding loans that include personal loans inched up by just 3%. The personal loan portfolio acquired from Standard Chartered continued its falling trajectory.
Unsecured retail advances (including retail microcredit) as a percentage of net advances declined by 160bps to 8.9%. Credit cards outstanding dropped 8% on-year and were flat quarter-on-quarter at ₹12,294 crore even after more than a year since the Reserve Bank of India (RBI) lifted the curbs on the bank in February 2025. Though management is keen to increase the share of unsecured loans, it has remained flat sequentially as well.
Investments, the other components of total assets, declined by 5% on-year to ₹1.73 trillion. This drop, according to management, was due to yield movements in the bond market that limit trading opportunities for gains.
Deposit base
On the liabilities side, deposit growth was robust at 15% to ₹5.72 trillion. This kept the credit-deposit (C-D) ratio at a comfortable 86.6%, up from 85.5%. If term deposit rates continue to rise for the banking system in tandem with the rising G-Sec yields, the bank can afford not to chase term deposits aggressively. At the same time, the advances growth will not be constrained as the current level of C-D ratio can be stretched further.
While Kotak is well placed on most parameters, there is room to improve on cost efficiency. Its cost-to-income (C-I) ratio fell by 160bps on-quarter to 46.7%, but is still far higher than 39.9% each for peers HDFC Bank and ICICI Bank. The scope to reduce the gap in the C-I ratio is substantial for Kotak, even if the higher marketing expenses for brand building and uptick in the business acquisition-related costs in Q4FY26 are factored in.
Overall, FY26 has been a flat year for Kotak Bank with consolidated net profit (after excluding one-offs) almost unchanged at ₹19,103 crore. Unless the growth rate picks up sustainably, the valuation appears high as the stock trades at a consolidated price-to-earnings (P/E) ratio at 18x, based on Bloomberg consensus estimates for FY27.