Kotak Mahindra Bank Shares Drop on Muted Q3 Margins, Cautious Brokerage Views

Shares of Kotak Mahindra Bank fell as much as 5% in early trade on Tuesday, a day after the lender reported its third-quarter results. The private bank posted flat growth in net interest margins for the December quarter, prompting at least one brokerage to cut its earnings estimates for FY26 and FY27.

At 12 pm, shares of the lender were down 3% at ₹409 apiece, recovering part of the losses seen in early trade.

On Friday, Kotak Mahindra Bank reported a standalone profit after tax of about ₹3,450 crore for Q3 FY26. This was largely in line with expectations, according to Motilal Oswal Financial Services, and marked a rise of 4.3% year-on-year (YoY) and 5.9% quarter-on-quarter (QoQ). On a consolidated basis, net profit stood at ₹4,920 crore, up 5% YoY and 10% QoQ.

Net interest income rose 5.1% YoY and 3.5% QoQ to ₹7,560 crore by the end of December. However, net interest margin remained flat QoQ at 4.54%. Margins were slightly impacted by around 4 basis points due to short-term funds being parked in low-yield treasury instruments.

Total advances grew 16.1% YoY and 3.9% QoQ to ₹4.81 lakh crore, supported by broad-based growth in home loans, business banking, small and medium enterprises, and corporate loans. Credit card loans declined 1% QoQ. Deposits increased 14.6% YoY and 2.6% QoQ, while current account balances fell 4% QoQ. As a result, the CASA ratio declined by 100 basis points QoQ to 41.3%.

Fresh slippages, or NPAs, declined marginally by 1.5% QoQ to ₹1,610 crore. Credit costs continued to trend lower, and management expects further improvement in Q4 FY26 and Q1 FY27. The gross NPA ratio fell by 9 basis points QoQ to 1.3%, while the net NPA ratio eased to 0.31%.

Operating expenses rose 8.3% YoY and 8.4% QoQ to ₹5,020 crore, partly due to a one-time impact of ₹95.5 crore linked to the new labour code. Pre-provision operating profit grew 3.8% YoY and 2.1% QoQ to ₹5,380 crore, slightly below estimates.

CASA deposits were flat QoQ, while term deposits grew faster at 16.6% YoY and 4.4% QoQ. The provision coverage ratio remained stable at 76%. The bank remained cautious on the retail commercial vehicle segment. SMA-2 loans stood at ₹280 crore, or 6 basis points of total loans. The capital adequacy ratio and CET-1 stood at 21.5% and 22.6%, respectively.

“Given the continued growth traction, we believe the bank is well positioned to deliver a healthy loan CAGR of about 16% over FY26–28E. We maintain our earnings estimates and expect RoA/RoE of 2%/12.5% by FY27. We reiterate our Buy rating with a target price of ₹500,” Motilal Oswal Financial Services said.

However, JM Financial said Kotak Mahindra Bank’s return profile remains weaker compared with HDFC Bank and ICICI Bank.

“With most term deposit repricing expected to be completed by the second quarter of FY27, peers appear better positioned for margin expansion. While faster growth in unsecured loans could support margins, growth in these segments remains gradual. EPS estimates for FY26 and FY27 have been largely unchanged,” the brokerage said.

It added that the stock currently trades at 1.7 times FY28 book value per share, which is only about a 5% discount to peers. JM Financial maintained a Reduce rating with a revised target price of ₹435, valuing the bank at 1.8 times FY28 expected BVPS.

Meanwhile, HDFC Securities lowered its earnings estimates for FY26 and FY27 by 5% and 2%, respectively. It maintained its Buy rating and set a target price of ₹495, implying an upside of over 17% from the previous close.

CLSA said operating expenses rose after being tightly controlled for four consecutive quarters, even as growth momentum improved. Emkay Global expects Kotak Mahindra Bank’s return on assets to remain modest at around 1.9% in FY26, before improving to about 2% in FY27 and FY28 as margins recover and credit costs normalise.