Kotak Mahindra Bank Q1 profit dips 7% to Rs 3,282 cr; asset quality weakens, costs rise

Kotak Mahindra Bank has announced a 7% year-on-year decline in standalone net profit for the first quarter of the fiscal year 2026, amounting to Rs 3,282 crore. This decline, reported on Friday, 26 July, was largely attributed to a significant rise in provisions and contingencies, which increased by 109% year-on-year to Rs 1,208 crore. The bank noted that this net profit figure was adjusted for a one-time gain from the sale of its general insurance business, which, when included, brought the total unadjusted net profit to Rs 6,250 crore.

The bank's core performance showed some positive signs, with net interest income (NII) rising by 6% year-on-year to ₹7,259 crore, indicating steady growth in its lending operations. The net interest margin (NIM) remained robust at 4.65%, reflecting efficient core banking operations. Despite this, operational efficiency faced challenges, with the cost-to-income ratio climbing to 46.19% and the return on equity (ROE) softening to 10.94%, down from 13.91% a year earlier.

Asset quality showed signs of strain as gross non-performing assets (GNPA) increased to 1.48% from 1.39% in the same quarter the previous year. Meanwhile, net non-performing assets (NNPA) remained stable at 0.34%, suggesting effective recovery efforts. However, the bank's CASA ratio, a key indicator of low-cost deposits, declined to 40.9% from 43.4% a year earlier, indicating a changing deposit mix in a high-interest-rate environment.

Despite the challenges in its core banking operations, Kotak Mahindra Group reported a stable overall performance. On a consolidated level, the group posted a net profit of ₹4,472 crore, reflecting a modest 1% increase year-on-year, excluding the insurance divestment gain. The group's return on equity stood at 11.13%, and return on assets (ROA) was 2.03%. Total assets under management (AUM) grew by 18% year-on-year, reaching ₹7.5 lakh crore.

Kotak's subsidiaries contributed significantly to the group's resilience. Kotak Asset Management Company (AMC) saw a substantial 86% year-on-year surge in profit after tax (PAT) to ₹326 crore, driven by robust equity inflows and rising AUM, which hit ₹5.25 lakh crore. Kotak Mahindra Prime, the asset finance arm, posted a 17% increase in PAT to ₹272 crore, with customer assets rising 16% year-on-year to ₹41,469 crore.

Kotak Securities also performed well, recording a 16% rise in PAT to ₹465 crore, achieving a 12.8% market share across cash and derivatives. Kotak Mahindra Life Insurance delivered an 88% increase in PAT to ₹327 crore, with a gross written premium for the quarter at ₹2,861 crore and AUM rising 14.7% year-on-year to ₹96,581 crore.

The bank's loan growth was commendable, with customer assets standing at ₹4,92,972 crore, a 13% year-on-year increase. Net advances grew by 14% to ₹4,44,823 crore. The capital adequacy ratio (CAR) of 23% and CET-I ratio of 22.4% were comfortably above regulatory norms, ensuring the bank maintains a strong capital position to support its operations and growth.

While the core banking business faced challenges with declining net profit and rising non-performing assets, the robust performance of its subsidiaries and a strong capital buffer position, Kotak Group is positively for the remainder of the fiscal year 2026.

Shares of Kotak Mahindra Bank Ltd ended at Rs 2,124.95, down by 0.77%.