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Kotak Bank Results Q1FY26: Profit Dips 7% Amidst Rising Provisions and Margin Pressure

Last updated on 28 Jul 2025 Wraps up in 4 minutes Read by 147

Kotak Mahindra Bank announced its financial results for the first quarter ending June 30, 2025, revealing a significant decline in standalone net profit. The bank reported a net profit of ₹3,282 crore, a 7% year-on-year decrease from ₹3,520 crore in Q1 FY25 (after adjusting for a one-time gain from the sale of its general insurance business in the previous year). This dip in profitability has raised concerns among investors and analysts, despite healthy loan and deposit growth.

Table of Contents

  1. Key Highlights of the Quarter
  2. Performance Analysis: A Closer Look
  3. Share Price Reaction: A Significant Decline
  4. Financial Metrics at a Glance
  5. Segment-wise Performance
  6. Management Commentary & Future Outlook
  7. Frequently Asked Questions (FAQs)

Key Highlights of the Quarter

Kotak Mahindra Bank’s Q1 FY26 results highlight a mixed performance, with core operational growth overshadowed by increased provisions and margin compression.

  • Net Profit (Standalone): Stood at ₹3,282 crore, down 7% YoY (adjusted). Consolidated PAT marginally rose by 1% YoY to ₹4,472 crore, excluding the one-time gain in Q1 FY25.

  • Net Interest Income (NII): Increased by 6% year-on-year to ₹7,259 crore.

  • Operating Profit: Rose by 6% YoY to ₹5,564 crore.

  • Provisions and Contingencies: Surged by 109% year-on-year to ₹1,208 crore.

  • Loan Growth: Net advances grew 14% YoY to ₹4,44,823 crore.

  • Deposit Growth: Total deposits averaged ₹4,91,998 crore, marking a 13% YoY increase.

Performance Analysis: A Closer Look

Profitability & Margins

The standalone net profit decline was primarily driven by a sharp increase in provisions and contingencies, which more than doubled year-on-year. While Net Interest Income (NII) showed a 6% growth, the Net Interest Margin (NIM) fell sharply to 4.65%, contracting by 32 basis points quarter-on-quarter. This compression was attributed to lower lending rates and a higher contribution from the low-yielding corporate loan book. Analysts also noted the faster repricing of External Benchmark Lending Rate (EBLR)-linked loans.

Asset Quality & Provisions

Asset quality showed a slight deterioration. The Gross Non-Performing Asset (GNPA) ratio rose to 1.48% from 1.39% a year ago, while Net NPA (NNPA) stood at 0.34%. Fresh slippages jumped to ₹1,812 crore compared to ₹1,488 crore in Q4 FY25. Stress was particularly visible in the micro-finance institutions (MFI) and retail commercial vehicle (CV) loan books, and Kisan Credit Card (KCC) loans. The sharp jump in credit costs to 93 basis points also raised red flags.

Share Price Reaction: A Significant Decline

Following the announcement of its Q1 FY26 results, Kotak Mahindra Bank's shares experienced a notable decline on July 28, 2025. The stock opened lower and fell by as much as 6.35% to 7% in early trade. It closed at ₹1,989.60 on the NSE, down from its previous close of ₹2,124.60. The stock was one of the top contributors to the Nifty 50's downside movement and the worst performer on the Nifty 50 Index for the day.

This negative market reaction was primarily due to the lower-than-expected net profit, significant increase in provisions, and the sharp contraction in Net Interest Margins. While the bank demonstrated strong loan and deposit growth, these concerns overshadowed the positive aspects of the results. The decline marked the stock's worst day in over a year.

Financial Metrics at a Glance

Here is a simplified table summarising Kotak Mahindra Bank’s standalone financial performance compared to the previous year's first quarter:

Metric Q1 FY26 (₹ Crore)
Net Profit (Adjusted) 3,282
Net Interest Income 7,259
Operating Profit 5,564
Provisions & Contingencies 1,208
Net Advances 4,44,823
Total Deposits 4,91,998

Segment-wise Performance

While the bank's core banking operations faced headwinds, some segments showed positive growth:

  • Kotak Mahindra Prime: The vehicle and asset finance arm reported a 17% YoY rise in PAT to ₹272 crore. Its customer assets grew 16% YoY to ₹41,469 crore.

  • Kotak Securities: Recorded a 16% increase in PAT to ₹465 crore, achieving an overall market share of 12.8%.

  • Kotak Mahindra Life Insurance: Showed strong performance with PAT up 88% YoY to ₹327 crore. Gross written premium was ₹2,861 crore, and AUM reached ₹96,581 crore.

Management Commentary & Future Outlook

The management acknowledged the challenges, particularly regarding the stress in the retail commercial vehicle portfolio due to adverse macroeconomic conditions. However, some analysts believe that the MFI stress might have peaked, and the CV segment could normalise in 1-2 quarters. The bank also anticipates potential benefits from aggressive deposit repricing, which could aid earnings in FY27-28.

Despite the short-term disappointments, brokerage firms largely maintained their positive long-term outlook. Analysts expect the NIM to bottom out in Q2 FY26 before recovering due to full rate transmission impact and benefits from deposit repricing.

Frequently Asked Questions (FAQs)

1. What was Kotak Mahindra Bank's standalone net profit in Q1 FY26?
Kotak Mahindra Bank reported a standalone net profit of ₹3,282 crore for Q1 FY26, which is a 7% year-on-year decline after adjusting for one-time gains in the previous year.

2. How did Kotak Mahindra Bank's revenue (NII) change this quarter?
The bank's Net Interest Income (NII) grew by 6% year-on-year to ₹7,259 crore in Q1 FY26.

3. What were the key factors impacting Kotak Mahindra Bank's profitability in Q1 FY26?
The primary factors were a 109% surge in provisions and contingencies and a sharp 32 basis points quarter-on-quarter contraction in Net Interest Margin (NIM) to 4.65%.

4. How did the market react to Kotak Mahindra Bank's Q1 FY26 results?
Kotak Mahindra Bank's shares declined significantly, falling by over 6% on July 28, 2025, reflecting investor concerns over the profit miss and underlying operational challenges.

5. What is the outlook for Kotak Mahindra Bank's asset quality?
Asset quality deteriorated slightly, with the Gross NPA ratio rising to 1.48%. Stress was observed in micro-finance and retail commercial vehicle loan books.

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