Kotak Mahindra Bank Q1 FY26 Results: Profit Slips on Higher Provisions, Margins Under Pressure

Kotak Mahindra Bank’s Q1 FY26 earnings disappointed the Street as higher provisions and margin compression dragged profits despite healthy loan growth and a strong balance sheet. The lender posted a 7% drop in standalone net profit and a sharper 40% decline in

consolidated earnings, triggering a sharp sell-off in its stock.

Kotak Mahindra Bank Q1 FY26 Results: Key Highlights

• Standalone Net Profit (PAT): ₹3,282 cr, down 7% YoY from ₹3,520 cr in Q1FY25 (excluding a one-time insurance gain last year) 

• Consolidated PAT: ₹4,472 cr, 40% lower YoY, impacted by elevated provisions and absence of last year’s one-time gain 

• Net Interest Income (NII): ₹7,259 cr (+6% YoY) 

• Net Interest Margin (NIM): 4.65%, down 37 bps YoY from 5.02%, reflecting rate cut pressures 

• Provisions & Contingencies: ₹1,208 cr — up over 100% YoY, putting significant pressure on profits 

• Asset Quality: Gross NPA increased to 1.48% from 1.39%; NNPA rose marginally to 0.34%; provision coverage at 77% 

• Loan Growth: Advances up 13–14% YoY; retail lending grew 16% 

• Deposit and CASA Trends: Average deposits up 13%; CASA ratio steady at 40.9%

• Returns & Capital Metrics: ROE at 10.9–11.1%; CET‑1 ratio 21.8–22.7% inclusive of profits; LCR at 138%

📉 Market Reaction & Analyst Take

• The stock plunged 6–7% on July 28 after the results were released, marking its worst decline in 15 months, hitting levels around ₹1,968–1,986 per share 

• Analysts downgraded forecasts, citing concerns over asset quality, margin pressure, and higher credit costs. Many revised target prices downward (e.g. Morgan Stanley cut to ₹2,600, Nomura at ₹2,150; SBI Securities sees fair value at ₹2,000–2,050) 

• Experts view Kotak’s near-term outlook as constrained but see medium-term recovery potential as margins stabilize and asset quality improves by Q3

🔍 What Drove the Weakness?

• Margin compression due to RBI rate cuts—borrower-linked lending rates dropped faster than deposit rates 

• Rising credit costs, especially from retail commercial vehicle (CV) and microfinance segments, drove up non‑performing assets and provisioning 

• Absence of last year’s one-off insurance stake sale gain in comparable results further depressed profits 

📌 Strategic View: Summary Table

Area	Q1 Result	Outlook / Implication
Profitability	Standalone PAT down 7%; consolidated 40% drop	Margin and provision pressures continue
Asset Quality	GNPA 1.48%, NNPA 0.34%	Elevated slippages in CV/MFI segments
Loan Growth	13–14%, led by retail +16%	Strong demand; healthy mix
Balance Sheet Health	CASA 40.9%; CET1- 22%; LCR 138%	Strong capital buffer and liquidity
Market Response	Stock down 6–7%; downgraded targets	Caution among investors; mixed sentiment
Outlook	Better from Q3 as pricing normalizes, credit trends ease	Long‑term franchise still intact

✅ Takeaway for Investors & Stakeholders

Despite solid loan and deposit growth, Kotak’s Q1 numbers were flattered last year by a one-time insurance gain. This year, credit costs and margin squeeze weighed heavily, leading to weaker earnings and a sharp market reaction. While structural fundamentals remain healthy, the near-term environment calls for caution until margins and asset quality stabilize—likely by Q3 FY26.

source:-Kotak mahindra Bank