Kotak Mahindra Bank in 2026: margins, deposits, M&A

Why Kotak’s latest commentary matters

Kotak Mahindra Bank’s management commentary after the December quarter results pointed to a more predictable earnings trajectory, built on steady asset quality, resilient margins and improving liability traction. Net interest margins (NIMs) were steady sequentially in Q3FY26, with management indicating moderate improvement and stabilisation from Q1FY27, assuming no further policy rate cuts. That guidance sits alongside a balance sheet that remains conservatively positioned, with strong capital adequacy and improving liquidity coverage.

The bank is also keeping strategic flexibility open. It has highlighted a robust capital base and low-cost funding as key strengths that can support bolt-on acquisition opportunities, including a potential acquisition of Deutsche Bank’s India retail and wealth portfolios.

Capital base keeps deal optionality open

Kotak’s net worth is stated at ₹157,395 crore, which underpins its capacity to pursue inorganic opportunities without compromising balance sheet strength. The bank’s approach, as described, is to pursue deals that improve combined returns rather than transactions that require capital infusion to sustain operations.

A structural advantage highlighted is the broader financial group with 100% subsidiary ownership. This matters because value created in group entities such as mutual funds or capital markets arms remains within the group, potentially amplifying consolidated returns if execution remains strong.

Low-cost funding remains a core advantage

The bank’s low cost of funds is repeatedly presented as a competitive moat. One data point in the provided information pegs cost of funds at 5.09%, supported by a 43% share of low-cost current and savings accounts (CASA) in total deposits. Elsewhere in the same material, management commentary also describes a declining quarterly trajectory in cost of funds to 4.54% in Q3, from 4.7% in Q2 and 5.01% in Q1, attributing the improvement to low-cost deposit growth and repricing of maturing term deposits.

The narrative is consistent on direction: improving liability mix helps protect margins even when industry-wide funding costs are under pressure.

Deposit growth and liability traction

Deposits grew 15% year-on-year, led by healthy CASA accretion, with the CASA ratio described as over 41%. Management also pointed to deeper customer relationships through consumption-, investment- and asset-led sourcing, and referenced products such as Kotak 811 and the Solitaire affluent offering as key platforms for customer acquisition and retention.

The bank also noted that financial market flows are creating pressure on system-wide deposit mobilisation. Against that context, stronger traction in low-cost deposits is positioned as a meaningful support for profitability.

Margin outlook: CRR benefit, repricing and mix

Management indicated that the benefit of a recent CRR cut is expected to fully reflect in Q4FY26. It also said term deposit repricing is likely to taper off over the next two quarters, which could ease pressure on funding costs.

On asset yields, management indicated unsecured portfolio yields could improve in the second half of FY27 as asset mix normalises, supporting margins. NIMs were stated as stable at 4.93% during the quarter in one section of the provided text. Separately, management referenced that if certain short-term earning assets are excluded, the bank’s “BIM” improved to 4.58%, up 4 basis points during the quarter.

Credit costs trend down, retail CV remains under watch

Credit cost declined to 63 basis points in Q3FY26, aided by improved performance in the unsecured retail book and stronger collection efficiency. Management also described a sequential decline from 93 basis points in Q1 to 79 basis points in Q2 and 63 basis points in Q3.

Asset quality metrics were described as improving in Q3. One set of figures cited gross NPA at 1.3% versus 1.39% in the previous quarter, net NPA at 0.31% versus 0.32%, and provision coverage ratio at 76%. Another section cited gross NPA at 1.5% with net NPA at 0.41% and provision coverage improving to 73%.

Retail commercial vehicle (CV) stress remains a monitored pocket. Management said it expects credit costs in this segment to plateau by Q4FY26, with further moderation likely thereafter.

Costs, one-offs, and the efficiency push

Management flagged that operating expenses were “under control” but noted one-offs. Q3 included a pre-tax provision of ₹96 crore related to the new labour code. Another data point cited other operating expenditure of ₹2,700 crore for Q3, up 5% quarter-on-quarter.

Cost-to-income was discussed in multiple places, including 47.4% when excluding the labour code one-off, and 47.2% for the quarter in another summary, versus 47.5% in Q2FY25 and 48.4% in Q3FY24. Management’s framing was clear: acquisition and marketing costs rise with volumes, but fixed costs and productivity are being controlled and supported by automation and digitisation.

Digital reset after regulatory restrictions

Kotak faced regulatory headwinds in FY25 due to restrictions on digital onboarding and new credit card issuance. The material states the bank used the embargo period to overhaul tech infrastructure, automate customer journeys, and improve IT resilience. These investments are expected to support scalability and efficiency, even if operating expenses remain elevated in the near term due to branding and product roll-outs.

Subsidiaries: meaningful contribution to profits

Subsidiaries were described as meaningful contributors to consolidated performance, at around 30% of profits, supported by momentum in capital markets, investment banking and auto finance.

Specific subsidiary metrics cited include:

• Kotak Securities: PAT of ₹448 crore, up 46% YoY.
• Kotak AMC: AUM of ₹500,000 crore, and PAT of ₹240 crore, up 65% YoY.

Key metrics snapshot

Market impact: what investors will track

For investors, the near-term focus is likely to remain on three moving parts already flagged by management: the pass-through of CRR cut benefits into Q4FY26, the tapering of term deposit repricing over the next two quarters, and the trajectory of unsecured yields into FY27. The credit cost line has already improved to 63 bps in Q3FY26, and management expects gradual improvement in asset quality with credit costs trending down after peaking earlier in the cycle.

Any inorganic move, including the potential Deutsche Bank India retail and wealth portfolio opportunity referenced, is likely to be judged against Kotak’s stated filter: synergy that enhances returns rather than a deal that dilutes capital strength.

Conclusion

Kotak Mahindra Bank’s latest disclosures underline a steady setup: strong capital (net worth of ₹157,395 crore), improving liability traction (deposits up 15% YoY), and easing credit costs (63 bps in Q3FY26), alongside a continued technology and efficiency push. Management expects CRR benefits to reflect in Q4FY26 and sees margin stabilisation from Q1FY27 if there are no further policy rate cuts. Investors will watch how deposit mix, unsecured yield normalisation and retail CV stress evolve through FY26, and whether any bolt-on acquisition opportunities meet the bank’s return-focused criteria.