Kotak Mahindra Bank Q1 Review: Will Credit Costs, NIM Recover? Brokerages Weigh In

Kotak Mahindra Bank’s first-quarter results for FY26 have drawn concerns from top brokerages, with a common thread running through their reactions: rising credit costs, deteriorating asset quality, and a sharp slide in net interest margin have raised red flags about the bank's near-term trajectory. The bank also posted an unexpected spike in credit costs to a multi-quarter high of 93 basis points.

Across the board, brokerage reports emphasised that Kotak is facing tougher times than peers like HDFC Bank and ICICI Bank in navigating unsecured retail lending. That challenge, combined with worsening asset quality metrics and slower momentum in high-yielding segments, overshadowed the otherwise healthy 14% YoY loan growth.

Kotak Mahindra Bank reported a standalone net profit of Rs 3,282 crore, down 7% year-on-year on an adjusted basis and below the Bloomberg estimate of Rs 3,496.76 crore. Profit fell sharply due to a combination of a two-fold increase in provisions and slippages, as well as a sharp compression in margin.

Kotak Mahindra Bank Q1 Highlights

• Gross NPA ratio rose to 1.48% from 1.42% QoQ

• Net NPA increased to 0.34% from 0.31%

• Fresh slippages jumped to Rs 1,812 crore vs. Rs 1,488 crore in Q4FY25

• NIM fell sharply to 4.65% (-32 bps QoQ)

• Provisions and contingencies doubled YoY to Rs 1,208 crore

• Loan growth was strong at 14% YoY

• Deposit growth at 15% YoY

Bernstein noted a strategic misstep in its approach to unsecured retail.

“With this quarter's results, KMB joins a growing list of lenders discovering that scaling up unsecured retail is a more difficult path than the ICICI Bank or HDFC Bank playbook might suggest," it said.

The sharp jump in credit costs to 93 basis points, along with a 6 basis points uptick in the GNPA ratio, underlined the risks. Bernstein noted the EPS decline of 7% YoY, despite strong loan growth, as evidence of underlying pressure.

“The sharp jump in credit costs could lead the bank to rethink its strategy of increasing the share of unsecured retail," the brokerage said.

It further added that “NIM contracted sharply to 4.65% despite the cost of funds declining, reflecting faster repricing of EBLR-linked loans and a continued decline in high-yielding segments such as credit cards and MFI.”

Jefferies noted that “Kotak's Q1 profit of Rs 3,300 crore, down 7% YoY, missed estimates due to higher credit cost & lower fees.”

The report highlighted slippages in MFI and commercial vehicle segments as the primary culprits behind rising credit costs: “Slippages rose by 33% YoY to 1.9% of past year loans and lifted credit costs to 0.9% of average loans.”

However, Jefferies noted management’s view that MFI stress has peaked and CV may normalise over 1-2 quarters. They also flagged a potential tailwind from aggressive deposit repricing.

The brokerage said, “The key positive lever for Kotak Bank has been the higher cut in savings deposits and faster repricing of term deposits… This could aid earnings in FY27-28.”

Despite trimming FY26 EPS by 5%, Jefferies remains bullish with a 'Buy rating and target price of Rs 2,550.

Nomura maintained a Neutral rating and slashed its FY26–28 EPS estimates by 3–7%, citing a combination of margin erosion and asset quality concerns.

“KMB's results were soft, led by asset quality deterioration and a sharper decline in NIMs… Slippages and credit cost were elevated at 1.7% and 1.2%, respectively," the broking noted.

“The share of unsecured retail has declined to 9.7% versus 10.5% in 4Q, and yet, credit costs continue to climb," the broking noted.

Nomura reduced its target price to Rs 2,150 from Rs 2,200, stating, “We have lowered our target multiple due to a lower RoE outlook. We see limited upside potential.”

Morgan Stanley acknowledged the weaker-than-expected quarter but maintained a long-term optimistic stance, keeping its "Overweight rating intact with a revised target price of Rs 2,600 (from Rs 2,650)".

“While growth was stronger than the system, NIM decline and NPL formation were higher than expected," the brokerage noted.

They flagged that credit costs rose to 110 basis points, and net slippages jumped to Rs 1,300 crore from Rs 700 crore QoQ. The brokerage viewed this as a temporary setback.

It further added, “We expect earnings to accelerate thereafter, led by lagged repricing of deposits, CRR cut benefits, and improvement in loan mix.”

On asset quality, the brokerage said, “No evident stress in SME or mid-corporate portfolio, and no significant exposure to unsecured business loans.”

Morgan Stanley remains confident that Kotak’s profitability starting point is stronger than peers and sees FY26 H2 as a turning point: “We expect all three drivers—loan growth, margin, and asset quality—to improve after H1-F26.”