Kotak Mahindra Bank is also seeing growth in its SME portfolio, while retail lending is showing signs of recovery across personal loans, credit cards and loan-against-property lending, according to Citi. The brokerage said asset quality remains stable across retail and SME portfolios.
Citi made the observations after meeting Kotak Mahindra Bank management at its Financial Investor Forum 2026.
Kotak is initially deploying FCNR-B inflows to replace high-cost wholesale deposits and borrowings, Citi said. Near-term surplus liquidity is being channelled into treasury investments and short-term lending, while the medium-term objective is to redeploy the funds into higher-yielding, longer-duration assets.
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Citi said the transition is likely to unfold over the next few quarters as Kotak balances profitability with risk discipline. Deposit inflows are also being supported by FCNR-B mobilisation.
The brokerage said Kotak's deposit franchise continues to benefit from current account momentum, driven by SME relationships and capital market activity. Granular savings account accretion also continues.
Kotak's digital platform 811 is positioned to capture disproportionate gains from merchant discount rate-linked monetisation, given its outsized share in savings accounts relative to its deposit market share, Citi said.
Retail and SME lending show signs of recovery
Citi said retail lending growth moderated in the first quarter, with Kotak increasing its focus on loan-against-property lending, which continues to scale steadily.
The bank has also launched a three-year fixed-rate home loan product as an alternative for borrowers navigating a rising-rate environment, according to the brokerage.
Personal loans are poised for renewed growth, Citi said, citing a rising quarter-on-quarter disbursement trend and modest tenor elongation. Credit cards also returned to positive growth in the first quarter.
The SME portfolio grew 20% in the first quarter and remains a strategic priority, with about Rs 10,000 crore in ECLGS-linked sanctions supporting further growth. MFI disbursements and collection efficiency remain on track, Citi said.
Asset quality remains stable
Citi said retail and SME portfolios show no signs of deterioration in delinquencies. Personal loan stress has normalised, while only residual stress remains in the legacy retail CV/CE book.
The brokerage values Kotak Mahindra Bank shares at Rs 465 using a sum-of-the-parts methodology. It values the banking business at Rs 332 using a two-stage Gordon Growth Model.
Citi's key risks include a sharp downturn in capital markets, significant pressure on asset quality and slower loan growth because of economic weakness, given Kotak's more conservative approach than other banks.
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