As of the end of March, Kotak Mahindra Bank has reported that its unsecured retail advances, which include retail microcredit, constitute 10.5% of its total net advances. Following the bank’s latest fourth-quarter earnings announcement, analysts have shared mixed views on its outlook. While some emphasize the bank’s solid asset quality and consistent net interest margins, others express concerns over increased provisions and moderate loan growth. Key brokerage firms like Nuvama, Investec, and Citi have provided their insights into Kotak Mahindra Bank’s performance and future.

Mixed Reactions from Analysts

Despite the differing opinions, a common theme emerges that highlights the bank’s resilience and growth potential, albeit with caution regarding its current valuation and market conditions. Kotak Mahindra Bank faced a decrease in its standalone net profit for the fourth quarter, largely due to higher provisions related to its microfinance loans. However, it did see a 5% year-on-year increase in net interest income, reaching ₹7,284 crore, while net interest margins improved slightly from 4.93% to 4.97%.

• Asset Quality: The bank maintained stable asset quality, with the gross non-performing assets ratio decreasing from 1.5% to 1.42% and the net NPA ratio dropping from 0.41% to 0.31%.
• Provision Coverage: The provision coverage ratio increased to 78%, and fresh slippages fell to ₹1,488 crore, down from ₹1,657 crore in the previous quarter.

Insights from Nuvama

Nuvama reported that Kotak Mahindra Bank’s asset quality showed improvement, with slippages declining for the second consecutive quarter and the provision coverage ratio rising from 73% to 78%. However, the bank’s loan growth of 14% year-on-year and 3% quarter-on-quarter fell short of expectations.

• Customer Assets: Net customer assets increased by 3% quarter-on-quarter and 14% year-on-year. Excluding the acquisition of Standard Chartered, loan growth was 13% year-on-year.
• Consumer Loans: Consumer loans, including unsecured loans, surged by 17% year-on-year and 5% quarter-on-quarter.

Despite these mixed results, Nuvama raised its earnings per share target but downgraded its stock rating to ‘hold’ due to rich valuations, setting a new target price of ₹2,350.

Investec’s Perspective

Investec praised Kotak Mahindra Bank’s strong asset quality and stable net interest margins. They expect the bank to achieve higher growth, which will help offset normalized net interest margins and credit costs.

• Earnings Forecast: The brokerage revised its FY26 earnings per share projection downward by 4% to account for anticipated repo rate cuts, yet it still predicts a 14% compound annual growth rate for profit after tax from FY25 to FY27.

Investec maintained a ‘buy’ rating with a target price of ₹2,535, valuing the core bank at 2.4 times the estimated book value for March 2027.

Citi’s Analysis

Citi noted that Kotak Mahindra Bank’s earnings benefitted from tax credits and increased fees, although it identified shortcomings in growth and provisioning levels.

• Loan Delinquencies: Encouragingly, personal loan delinquencies showed improvement, and credit card stress appears to be stabilizing.
• Deposit Growth: Deposits rose by 11% year-on-year and 5% quarter-on-quarter, primarily driven by Current Account-Savings Account (CASA) growth.

The CASA ratio improved by 60 basis points quarter-on-quarter to reach 43%, prompting Citi to retain its ‘buy’ rating while adjusting its earnings forecasts upward by 2% for FY26 and FY27.

Conclusion

In summary, Kotak Mahindra Bank’s fourth-quarter performance showcases a mix of strengths and challenges, with analysts offering varied perspectives. While asset quality remains strong, the bank must navigate higher provisions and moderate loan growth as it seeks to capitalize on its growth potential in a dynamic market environment.