Kotak Mahindra Bank shares will be in focus on Monday, 26 October, after the private sector lender reported a strong earnings performance for the September quarter, with consolidated net profit rising 26% year-on-year to ₹5,645 crore.
On a standalone basis, the bank’s profit after tax increased 29% to ₹4,212 crore, supported by growth in core income and lower provisions.
Net interest income (NII), the difference between interest earned and interest expended, grew 16% year-on-year to ₹8,459 crore. However, net interest margin (NIM) contracted by 0.23 percentage points during the quarter, partly due to the bank’s mobilisation of ₹55,344 crore in FCNR(B) deposits under the Reserve Bank of India’s concessional swap facility.
The bank also disbursed loans worth ₹16,110 crore under the FCNR(B) scheme, which permitted leveraged borrowing against deposits.
Kotak Mahindra Bank share price on Friday, 23 October ended 1.70% lower at ₹430.10 apiece on the BSE.
Kotak Mahindra Bank Q2 results: What management said
Managing Director and CEO Ashok Vaswani said the bank expects to maintain its net interest margins during the remaining quarters of the financial year.
However, the deployment of funds raised through the FCNR(B) facility could continue to weigh on margins in the coming quarters, as the money has not yet been fully utilised. Vaswani said the impact could be partly offset by RBI rate hikes, given that around 60% of the bank’s loan book is linked to the repo rate.
During the September quarter, Kotak Mahindra Bank used FCNR(B) funds to reduce its high-cost borrowings through Inter-Bank Participation Certificates (IBPCs). It also acquired certain loans from its wholly owned subsidiary, Kotak Mahindra Investments.
The bank said that excluding the impact of the FCNR(B)-related transactions, loan growth would have been 19%, while deposit growth would have stood at 13%.
Investors will now assess whether strong earnings growth and advances can sustain the bank’s performance, while monitoring the trajectory of net interest margins and the impact of deploying FCNR(B) funds in the coming quarters.
Should you buy, sell or hold?
Nuvama Institutional Equities said Kotak Mahindra Bank’s credit growth accelerated to 25% year-on-year, or 19% excluding FCNR(B)-related lending and the Kotak Mahindra Investments portfolio. However, funding costs associated with FCNR(B) deposits led to a 22-basis-point quarter-on-quarter decline in net interest margin (NIM) to 4.3%. Along with higher provisions for standard assets, this resulted in a largely in-line profit after tax (PAT) of ₹4,200 crore, with return on assets (RoA) at 1.9%.
The brokerage expects the deployment of FCNR(B) deposits towards lending, along with the interest-rate hike cycle, to help the bank recover its margins over the next two to three quarters. It believes sustained credit growth and an improvement in RoA and return on equity (RoE) to 2–2.1% and 12–15%, respectively, under the new management could support a re-rating of the stock. Nuvama has retained its ‘Buy’ rating with a target price of ₹550 per share.
Systematix Institutional Equities said Kotak Mahindra Bank reported a standalone PAT of ₹4,210 crore in Q2 FY27, up 29.5% year-on-year and 2.2% sequentially. The result was marginally below its estimate but 2% above Bloomberg consensus, supported by higher net interest income and continued cost discipline.
The bank’s NIM stood at 4.31%, down 22 basis points quarter-on-quarter and 23 basis points year-on-year, largely due to FCNR(B) deposit mobilisation and related advances.
Systematix has revised its estimates to account for strong advances growth and further margin movements, while introducing FY29 estimates. The brokerage has maintained its ‘Buy’ rating and raised its target price to ₹510 from ₹475. It values the standalone bank at 2 times its estimated FY28 adjusted book value per share of ₹173 and assigns ₹161 per share to its subsidiaries and associates.
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