Kotak Mahindra Bank (KMB) is expected to deliver strong growth and maintain stable margins, with return on assets (RoA) projected at 2.2% and return on equity (RoE) at 13.5% by FY26. Key catalysts such as the anticipated reversal of the card issuance embargo and enhanced customer onboarding through advanced digital platforms are set to drive business expansion and revenue growth in the near term, according to a report by Motilal Oswal Financial Services.
KMB’s management highlighted stabilisation in NIMs, supported by favorable yields and cost of funds. The focus on increasing the share of unsecured loans is expected to improve yields further. Cost containment efforts, particularly through current account deposits, are also helping manage expenses.
The bank aims to achieve an RoA of over 2%, contingent on the lifting of the card issuance embargo, which would enable a renewed focus on customer acquisition and cross-selling through digital channels.
In 3QFY25, KMB reported a standalone profit after tax (PAT) of Rs 3,300 crore, marking a 10% year-on-year (YoY) growth. Consolidated PAT also grew 10% YoY to Rs 4,700 crore. Net interest income (NII) increased by 10% YoY to Rs 7,190 crore, while net interest margins (NIMs) improved by 2 basis points (bps) quarter-on-quarter (QoQ) to 4.93%, exceeding estimates of 4.83%. The margin expansion was driven by a reduction in savings account rates.
Total revenue grew 11% YoY to Rs 9,820 crore, in line with expectations. Operating efficiency improved, with the cost-to-income ratio declining by 22bps QoQ to 47.2%. Pre-provision operating profit (PPoP) increased by 13.5% YoY to Rs 5,180 crore.
Kotak Mahindra Bank increased tech spends beyond its usual 10-12 per cent allocation, preponing investments to meet RBI’s directives after a calculated Rs 450-crore annual impact from the credit card embargo imposed in April of 2024. CEO Ashok Vaswani said, “Some assumptions worked better, some worse,” adding that while progress with the regulator continues, there’s no timeline for lifting restrictions.
The bank’s loan book expanded by 15.1% YoY and 3.6% QoQ to Rs 4.14 lakh crore, driven by healthy growth across segments except for credit cards, which declined by 2% QoQ. Deposits grew by 15.9% YoY and 2.6% QoQ to Rs 4.74 lakh crore, supported by a 5% QoQ rise in term deposits (TDs). Current account deposits grew 5% QoQ, aided by IPO inflows, although the CASA ratio declined to 42.3% from 43.6% in the previous quarter, partly due to cuts in savings account rates in October 2024.Asset quality
Asset quality remained robust, with gross non-performing assets (GNPA) stable at 1.5%, while net NPA (NNPA) improved by 2bps QoQ to 0.41%. Provision coverage ratio (PCR) strengthened by 175bps QoQ to 73.2%. Fresh slippages moderated to Rs 1,660 crore, compared to Rs 1,870 crore in the previous quarter, with the microfinance segment contributing the most. Standard assets in the SMA-2 category stood at Rs 210 crore, representing 0.05% of total advances.
The bank’s ability to sustain healthy margins during a rate-cut cycle, coupled with its strategic foresight and operating efficiency, positions it as a resilient player in the financial sector.
KMB’s strong operating performance amid macroeconomic challenges, supported by its focus on high-yielding assets and improving asset quality, underscores its long-term growth potential
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