3 days ago

Kotak Mahindra Bank’s profits soar, but margins refuse to join the party

Kotak Mahindra Bank reported a 29 per cent rise in standalone net profit to Rs 4,212 crore for the September quarter, but the impressive earnings growth came with a caveat: its net interest margin (NIM) — the difference between what a bank earns on loans and it pays for funds — declined to 4.31 per cent from 4.53 per cent in the previous quarter.

The consolidated net profit rose 26 per cent year-on-year to Rs 5,645 crore, while standalone net interest income (NII) increased 16 per cent to Rs 8,459 crore. Operating profit grew 21 per cent to Rs 6,382 crore, suggesting that the bank’s underlying business continued to expand despite the pressure on margins.

Kotak mobilised around Rs 55,344 crore through foreign currency non-resident bank (FCNR(B)) deposits during the quarter. Part of the funds was used to repay expensive inter-bank participation certificate (IBPC) borrowings and finance the acquisition of the Kotak Mahindra Investments Ltd loan portfolio. The remaining liquidity was parked pending deployment into customer assets.

In banking, money sitting idle is rather like a guest who has arrived at a dinner party but has yet to be offered a seat. It is welcome, but it must eventually earn its keep.

FCNR impact

Replying to a News Associate query, Devang Gheewalla, Group Chief Financial Officer of Kotak Mahindra Bank, said the FCNR(B) deposits and associated advances contributed about 50 basis points to the margin calculation. The remaining sequential decline was attributed to quarter-specific account variations and repayment of IBPC borrowings. Excluding these effects, underlying core margins remained at the previous quarter’s level, he said.

Management expects the full-quarter impact of FCNR(B) deposits to weigh on margins in the third and fourth quarters. It hopes to offset the pressure by deploying surplus funds into customer loans at suitable rates and through the repricing of repo-linked advances.

Around 60 per cent of the bank’s existing advances are repo-linked, Gheewalla said, adding that management expected margins in Q3 and Q4 to remain around the Q2 level.

That is a statement of cautious optimism rather than a promise of an immediate recovery.

The bank’s advances grew 25 per cent year-on-year to Rs 5,77,295 crore as of September 30, 2026. Even after excluding loans against FCNR(B) deposits and the portfolio acquired from Kotak Mahindra Investments Ltd, growth stood at 19 per cent. Total deposits rose 23 per cent to Rs 6,51,491 crore, although growth excluding FCNR(B) deposits was 13 per cent.

Asset quality provided more cheerful reading. Gross non-performing assets declined to 1.04 per cent from 1.39 per cent a year earlier, while net non-performing assets fell to 0.24 per cent from 0.32 per cent. Slippages dropped 24 per cent to Rs 1,230 crore, and provisions declined 15 per cent to Rs 803 crore.

Fee and service income rose 21 per cent to Rs 2,926 crore, while operating expenses increased 14 per cent to Rs 5,271 crore. The cost-to-assets ratio improved to 2.40 per cent from 2.67 per cent in the year-ago quarter.

The bank reported an annualised standalone return on assets of 1.92 per cent and return on equity of 11.65 per cent. Its capital adequacy ratio stood at 21.9 per cent, with the Common Equity Tier 1 ratio at 21.4 per cent.

At the consolidated level, customer assets grew 21 per cent to Rs 6,99,250 crore, while assets under management increased eight per cent to Rs 8,14,118 crore.

The results, therefore, offer two stories. One is of a bank growing its profits, expanding its loan book and improving asset quality. The other is of a bank that must ensure the money it has attracted translates into sufficiently profitable lending.

The next two quarters will show whether the margin pressure is a temporary consequence of its funding strategy or a more persistent challenge to earnings growth, industry watchers opine.

By B D Narayankar

If you spotted a mistake or have feedback on this story, write to us at editor@newsassociate.com. Email us your press releases on the same ID.