Kotak Mahindra Bank Shares Fall 5% Despite Strong Q4; Analysts Cautious on FY27 Margins

Shares of Kotak Mahindra Bank fell as much as 5% to ₹364 on the BSE on Monday, even as the lender reported a better-than-expected performance for the March quarter of FY26, highlighting a divergence between headline earnings and investor concerns around future growth and margins.

The bank posted a net profit of ₹4,026.55 crore for Q4FY26, up 13.3% from ₹3,552 crore in the same period last year. Net interest income (NII) rose 8.1% year-on-year to ₹7,876 crore, supported by steady loan growth and improved operating performance. Asset quality also strengthened, with gross non-performing assets (GNPA) declining to 1.20% from 1.30% in the previous quarter and 1.42% a year ago, while net NPAs eased to 0.25%.

Despite these positives, brokerage firms pointed to emerging concerns around margin compression and the pace of credit growth, which weighed on sentiment.

Earnings Boosted by Lower Slippages, Credit Costs

Brokerage firm Nuvama Institutional Equities noted that the bank's profit beat was largely driven by a sharp decline in credit costs and improving asset quality. Slippages fell 37% sequentially to ₹10.18 billion, aided by better collection efficiency across retail segments, including microfinance, credit cards and commercial vehicles.

As a result, credit costs dropped to 39 basis points from 64 basis points in the previous quarter, while the provision coverage ratio improved to 79%. Core pre-provision operating profit (PPoP) grew 8% sequentially and 6% year-on-year, reflecting stable operating performance.

Margins, however, showed only a technical improvement. Reported net interest margin (NIM) rose 13 basis points sequentially to 4.67%, but this was largely due to lower day-count impact in the quarter. On an adjusted basis, margins remained flat, signalling underlying pressure.

Margin Outlook Remains a Key Concern

Brokerages have flagged the outlook on margins as the primary overhang for the stock. Nuvama retained a 'Hold' rating with a target price of ₹416, noting that NIMs are expected to moderate gradually in FY27 due to rising term deposit rates.

Systematix Institutional Equities echoed similar concerns, stating that while margins may decline at a gradual pace, the impact is likely to be more visible in the second half of FY27. The bank has already raised term deposit rates and is shifting towards longer-tenure deposits to strengthen funding stability, which could increase the cost of funds.

Although growth in low-cost CASA deposits remains strong — with the CASA ratio improving to 43.3%, it may only partially offset the pressure from higher deposit costs.

Loan Growth Steady, But Unsecured Segment Under Watch

Kotak Mahindra Bank reported loan growth of 16% year-on-year and 3% sequentially, driven by strong traction in mortgages, SME lending and business banking. Retail loans grew 4% sequentially, while the corporate book remained largely flat due to selective lending.

However, analysts highlighted that growth in the unsecured segment remains a key monitorable. While microfinance loans grew 8% sequentially, the overall share of unsecured loans stayed flat at 8.9%, indicating cautious expansion.

Nuvama noted that while slippages in unsecured portfolios have declined significantly, the bank needs to accelerate growth in this segment to support margins and overall profitability.

Management has indicated that the focus will remain on scaling unsecured lending in absolute terms without compromising underwriting standards, while continuing to tap opportunities in secured segments such as home loans and SME financing.

Strong Deposit Franchise and Digital Growth Support Stability

On the liability side, the bank continued to show strength, with deposits growing 15% year-on-year. Growth was driven by granular and low-cost deposits, particularly current and savings accounts.

The bank's digital platform, Kotak 811, continues to scale rapidly, adding 0.25–0.3 million accounts every month and contributing over 12% to the savings account base. This has helped improve funding stability and reduce reliance on high-cost deposits.

Systematix noted that the bank’s strategy of building a granular deposit franchise and leveraging digital channels is expected to support long-term operating leverage and efficiency gains.

Asset quality trends remained favourable during the quarter, with a sharp decline in slippages and stable recovery trends. The bank reported no major corporate stress, and improvements were seen across key retail segments.

Credit costs are expected to decline further, albeit at a slower pace, as most of the stress in unsecured segments appears to be behind. However, the management remains cautious on rural and commercial vehicle segments due to seasonality and macroeconomic risks.

The impact of new expected credit loss (ECL) norms is also expected to be minimal, with the one-time effect estimated at less than 2% of net worth.

Brokerage opinions remain divided on the stock. While Nuvama has maintained a 'Hold' rating citing margin pressure and moderate growth expectations, Systematix has reiterated a 'Buy' rating with a higher target price of ₹475, reflecting confidence in the bank's long-term growth trajectory and improving operating metrics.