Kotak Mahindra Bank: Navigating Growth with Strategic Prudence in Q2 FY26

Kotak Mahindra Bank, a prominent player in India's financial landscape, recently unveiled its performance for the second quarter of Fiscal Year 2026 (Q2 FY26), ending September 30, 2025. The consolidated results paint a picture of strategic navigation amidst evolving market dynamics, with a keen focus on digital transformation and asset quality. While the bank reported a consolidated Profit After Tax (PAT) of ₹4,468 crore, marking an 11% year-on-year decline, and a dip in Return on Equity (ROE) to 10.65% from 13.88% in Q2 FY25, the underlying operational metrics showcased robust growth and disciplined execution.

The bank's net advances demonstrated healthy growth, expanding by 15.8% year-on-year, while total deposits also saw a commendable rise of 14.6% year-on-year. This growth was underpinned by a strategic emphasis on curating propositions for focused consumer segments and leveraging automation and digitisation to enhance efficiency and scale. The management highlighted that the Kotak 811 app has emerged as a key growth engine, ranking as the #1 most downloaded banking app in India and #3 globally, underscoring the success of their digital initiatives.

Strategic Pillars and Segmental Performance

Kotak Mahindra Bank's diversified conglomerate structure, built on four engines of growth—Banking & Lending, Capital Markets, Protection, and Asset Management—continues to be a core strength, enabling the bank to capture shifting financial trends. The bank's subsidiaries are 100% owned, ensuring alignment and retention of profits within the group. The consolidated net worth stood at ₹1,67,935 crore, with book value per share growing 14% year-on-year to ₹844.

On the lending front, the bank saw sustained demand for consumer assets, which grew 16% year-on-year. Mortgage loans, including home loans and loans against property, showed healthy growth of 18% year-on-year. Business banking, particularly the secured micro and small SME portfolio, grew 20% year-on-year. However, the credit card portfolio experienced a 14% year-on-year decline, and management noted ongoing stress in the retail commercial vehicle (CV) segment, leading to tightened underwriting. The merger of BSS Microfinance and Sonata Finance, effective October 11, 2025, is expected to create a unified national franchise, enhancing reach and operational scale.

In capital markets, while the quarter saw lower volume flows impacting profits, Kotak Securities maintained a strong market share in Margin Trading Funding (MTF) at approximately 15% and continued its Tier-1 ranking for institutional equities. Kotak Mutual and Trustee company reported a 31% year-on-year growth in profits, with equity average assets under management reaching ₹360,000 crore. The life insurance business saw individual APE new business premium grow 12.2% year-on-year, though profits were impacted by a ₹165 crore hit due to new GST regulations.

Asset Quality and Future Outlook

Asset quality remained a key highlight, with the Net NPA ratio improving to 0.32% from 0.43% year-on-year, and the gross NPA ratio reducing to 1.39% from 1.48% quarter-on-quarter. The provision coverage ratio was maintained at a healthy 77%. Management expressed confidence that credit costs would gradually moderate in the second half of the financial year, particularly in the next two quarters, as personal loan credit costs have normalized and microfinance stress peaked in Q1.

Looking ahead, the bank anticipates a gradual improvement in Net Interest Margin (NIM) in the second half of the year, assuming no further repo rate cuts, driven by ongoing deposit repricing and CRR benefits. They also expect a post-monsoon recovery in the construction equipment industry and a gradual pickup in microfinance advances from Q3 FY26. The bank's focus remains on building a quality unsecured book and leveraging its strong capital adequacy (CET-1 at 21.8%) to pursue strategic opportunities, both organic and inorganic.

Kotak Mahindra Bank's Q2 FY26 performance reflects a strategic emphasis on digital-led growth, prudent risk management, and leveraging its diversified financial services model. Despite some headwinds, the bank's strong asset quality, robust capital position, and clear strategic direction position it for sustained growth and value creation in the coming quarters.