Introduction:

Kotak Mahindra Bank Limited (KMB) is a leading full-service financial conglomerate in India. Established in 1985 as Kotak Capital Management Finance Ltd and later renamed Kotak Mahindra Finance Ltd in 1986, it began as a bill discounting and leasing NBFC. In 2003, it made history as the first Indian NBFC to transform into a commercial bank.

Over the years, the Kotak Mahindra Group has expanded its presence across various financial services through its subsidiaries, offering asset management, life insurance, general insurance, broking and other financial products.

As of FY25, the Bank’s loan book stood at Rs. 4.27 lakh crore, accounts for a ~6% market share in private sector bank deposit/advances. Over the last 6 years, the bank's advances have grown from Rs. 2.2 lakh crore in FY20 to Rs.4.27 lakh crores in FY25 reflecting a CAGR of 14%. The Bank operated a network of 2,148 branches and 3,295 ATMs across the country at the end of FY25.

Business performance:

Bank advances can be categorized into 3 key segments- Consumer, Commercial and Corporate.

*Note- Segmental totals are added. 

Consumer loans-

• Over the past five years, KMB has seen a healthy performance in its consumer loan segment, which now contributes ~49% to the overall loan book. This segment primarily comprises home loans, loans against property (LAP), personal loans, and credit cards. 
• Home loans and LAP alone account for nearly 30%. The bank has focused on expanding this segment, especially in the secured retail lending space, resulting in 22% CAGR in its housing loan portfolio over the last five years. Home loans have inherently longer tenures enabling the bank to cross-sell a variety of financial products such as insurance, credit cards, and investment services. 
• While unsecured segments like personal loans and credit cards are part of the consumer portfolio, the bank has maintained a cautious approach, particularly evident in FY25 when it proactively tightened underwriting norms in response to rising stress in personal loan and credit card portfolios.

Commercial loans-

• This segment includes loans for commercial vehicles and construction equipment (CV/CE), agricultural financing, tractor loans, and microfinance. The bank’s strategy in this segment has been centered on catering to India's deepening rural and semi-urban credit demand. It contributes 22% to overall loan book.
• Within commercial lending, the CV/CE segment contributes around 10% of the total loan book. Over the last six years, the bank has witnessed a steady uptick in demand for these loans (14% CAGR over 6 years), largely driven by the government's continued thrust on infrastructure development and an improving macroeconomic environment. Increased activity in road construction, mining, and logistics has led to higher demand for commercial equipment, translating into healthy disbursements and asset growth in this category. Kotak has utilized its presence in transport clusters and industrial hubs to expand its reach and increase customer engagement.
• Agricultural financing, which makes up nearly 7% of the total loan book, has also seen traction. The bank provides a range of agri-related loans such as crop loans, agri-term loans, project finance, working capital finance, and loans under the agri-infrastructure fund scheme. Kotak's growth has been supported by its extensive branch network in semi-urban and rural areas. The bank uses local representatives for relationship-driven sourcing and actively participates in government credit schemes. By offering both priority and non-priority sector agri loans, Kotak has strengthened its ties within the rural economy and attracted retail deposits from these regions.
• In FY25, Kotak's microfinance segment, a smaller part of its loan portfolio, underwent a significant change. The bank proactively reduced its microfinance exposure by 33% year-on-year due to increased credit stress. Despite this reduction, the business remained profitable for the full year.
• Kotak's commercial lending book has consistently grown, comprising a balanced mix of secured and higher-yielding unsecured assets. The bank has achieved this growth and managed credit risk effectively through a measured approach, rural penetration, and sector-specific expertise.

Corporate loans-

• This segment caters to large Indian corporates, conglomerates, public sector undertakings, and financial institutions, offering a broad suite of products including working capital finance, medium-term loans, project finance, structured credit, and trade finance solutions. It contributes 22% to overall loan book.
• While the bank adopted a cautious stance during the early part of the five-year period—prioritizing asset quality and risk-adjusted returns—it has gradually increased its corporate exposure in tandem with improvements in India’s macroeconomic environment and corporate balance sheets. The focus has remained on well-rated clients, with selective participation in syndicated loans and structured lending opportunities.
• Kotak's has increased focused on transaction banking. The bank is using its corporate relationships to enhance engagement by offering services like cash management, trade finance, forex solutions, and supply chain finance.
• Despite rising interest rate cycles and periodic liquidity tightening, Kotak has maintained disciplined underwriting, resulting in stable asset quality within the corporate loan book.

Key updates 

• Acquisition: In January 2025, bank completed the acquisition of Rs.3,300 crores personal loan book portfolio of Standard Chartered Bank India on receiving necessary regulatory approval. The acquisition aligns with KMB’s strategy to transform for scale and focus on customer-centric growth. The high quality loan book from Standard Chartered Bank allows the bank to further improve its position in retail lending.
• Insurance business sale: In June 2024, Zurich has acquired 70% stake in Kotak General Insurance for a total consideration of Rs.5,560 crores. This deal aims to leverage Kotak local market knowledge and distribution network with Zurich’s international experience and technological capabilities.
• Embargo lifted: In April 2024, the Reserve Bank of India (RBI) directed KMB to cease the issuance of fresh credit cards and the onboarding of new customers through its online and mobile banking channels, effective immediately. The bank was found to be lacking in IT risk and information security governance for two consecutive years. During the year, the company availed services from skilled professionals associated with Infosys, Oracle, Accenture, and Cisco. Additionally, Grant Thornton Bharat was appointed as the company’s external auditor, with the approval of the RBI. In April 2025, RBI lifted the embargo after being satisfied with the remedial measures implemented by the bank and the submission of all necessary compliance details.

Investment rationale

We like Kotak Mahindra Bank because it has excellent asset quality and strong risk management. The bank also consistently earns high margins due to its solid customer deposits and selective lending, making it a standout in the Indian banking sector.

Superior Asset Quality and Risk Management 

Kotak Mahindra Bank's long-term success is built on its strong commitment to excellent asset quality and careful risk management. In a sector often susceptible to credit cycles and macroeconomic shocks, Kotak has distinguished itself by consistently maintaining one of the best asset quality metrics among Indian banks. This has been achieved through a rigorous risk framework, a conservative lending philosophy, and timely strategic recalibrations.

Kotak’s approach to asset quality starts with a focus on risk-adjusted return on capital (RaRoC) and Economic Value Add (EVA), which are used as guiding principles in credit underwriting and portfolio management. This ensures that profitability is not pursued at the cost of incremental risk. Even during periods of economic distress—such as the peak of the COVID-19 pandemic in FY2021 or the more recent stress in the unsecured lending space in FY2025—the bank proactively adjusted its portfolio. For example, it significantly scaled back exposure to microfinance, reducing its share in net advances to just 1.6% in FY2025, down 33% YoY, while maintaining profitability within that business vertical.

The institution’s ability to absorb shocks is further strengthened by its robust capital base. Over the last several years, Kotak has consistently maintained capital adequacy ratios (CAR) far above regulatory requirements. As of March 2025, Kotak reported a standalone CAR of 22.2% with a Common Equity Tier 1 (CET1) ratio of 21.8%, providing a substantial buffer for unexpected credit events. These metrics reflect conservative capital planning and prudent internal accruals.

Another factor that underpins Kotak’s asset quality is its diversified loan portfolio, well-distributed across retail, SME, and corporate segments. This reduces the risk of concentration and cyclical shocks. Even within retail, Kotak has shown restraint by not allowing unsecured lending to dominate the portfolio. In contrast to many peers, the bank emphasizes secured products such as home loans and commercial vehicle financing, which tend to carry lower default risk. 

Kotak's robust risk culture starts at the top, with a Group Chief Risk Officer and a clear governance structure. This ensures rigorous evaluation of all new initiatives, viewing risk not just as control, but as a strategic enabler. The bank prioritizes long-term sustainability and quality over short-term gains. Decades of navigating market cycles have embedded a risk-conscious DNA. This unwavering focus on governance and quality underpins Kotak's institutional strength.

In conclusion, Kotak Mahindra Bank’s superior asset quality is a result of institutional discipline, deep-rooted prudence, early warning mechanisms, and strong capital buffers. Its proactive and preventive approach to risk management, combined with digital transformation and a diversified loan book, enables it to remain resilient in the face of evolving credit cycles. 

Consistent high margins due to deposit base

Kotak Mahindra Bank has consistently delivered among the highest margins in the Indian banking sector, anchored in its strong liability franchise, prudent lending mix, and disciplined pricing strategy. The bank’s Net Interest Margin (NIM)—a key profitability metric—has remained superior across market cycles, reflecting both efficient asset deployment and low-cost funding.

Note- FY25 numbers are calculated on basis of data available. NIMs include other components also and is calculated as Interest income (incl. on investments) – Interest expense (incl. on other borrowings). 

In FY25, Kotak reported a standalone Net Interest Margin of 4.96%, the highest among major Indian banks. Even in prior years, the bank had healthy NIMs of 4.62% in FY2021–22 and 4.5% in FY2020–21, reflecting consistent performance across interest rate cycles.

A major contributor to this high margin profile is Kotak’s low-cost deposit base, anchored by a strong CASA (Current and Savings Account) ratio. Despite some moderation, Kotak’s CASA ratio stood at 43% in FY2025 (39% for peers), significantly above the industry average, which allows it to fund its assets at relatively lower cost.

*Note- In peers only HDFC, ICICI and Axis Bank are consider for comparison 

Bank is able to maintain and attract this low cost base by (a) superior segmentation and (b) investment in digital offerings. Kotak offers tailored propositions to meet the diverse needs of customer segments. For high-net-worth individuals it has launched Solitaire, which is a premium, invite-only banking program, it offers exclusive perks and personalized experiences. It also has customized offerings for SMEs, NRIs, and rural customers across geographies, supported by a large and growing physical and phygital branch network. 

At the same time leveraging technology it has launched products like Kotak 811 and ActivMoney. Kotak 811 is a fully digital, zero-contact savings account with video KYC, enabling seamless account opening across India. It has emerged as a driver of CASA growth by attracting tech-savvy and underserved customers. In FY24 ~70% of savings account opened through Kotak 811. The introduction of ‘ActivMoney’, a sweep-in deposit product offering attractive returns to customers while maintaining cost discipline for the bank, has enhanced the quality of liabilities. The effective cost of ActivMoney is estimated around 5.0%–5.25%, providing a middle ground between traditional savings (3.6%–3.65%) and term deposits (7.0%–7.3%). All these efforts have also resulted in higher deposit per branch. 

Note- FY25 numbers are calculated on basis of data available. 

Kotak Mahindra Bank has demonstrated the ability to sustain high margins despite having relatively lower exposure to high and medium-yielding segments compared to its private banking peers. This outperformance is a result of its prudent asset mix and disciplined underwriting practices, reflecting a well-calibrated lending strategy.

Rather than aggressively pursuing high-yield unsecured retail products like personal loans and credit cards, Kotak has adopted a selective approach. It focuses on specific high-yielding pockets such as credit cards, personal loans, vehicle finance, and microfinance. These segments, despite facing some asset quality stress in FY2025, have contributed positively to overall yields and helped support the bank’s net interest margins (NIM).

At the same time, Kotak maintains a significant portion of its loan book in low-yielding but secured segments like home loans and loans against property. These assets offer lower returns but come with relatively lower credit risk, adding stability to the portfolio. By deploying barbell approach (mix of low and high yield), Kotak has managed to keep risk-adjusted returns healthy and margins resilient, even without disproportionately tilting towards risky or volatile segments. In conclusion, Kotak Mahindra Bank’s higher margins are a result of structural advantages: a strong CASA base, high-yield lending mix, cost-effective deposit innovation, and tight risk control. 

Built for the long term 

Kotak Mahindra Bank has consciously maintained one of the strongest capital positions among Indian banks, with a Capital Adequacy Ratio (CRAR) of 22.2% and Common Equity Tier-1 (CET1) at 21.8% as of FY25. In contrast, most large private sector peers such as HDFC Bank, ICICI Bank, and Axis Bank typically operate with CRAR levels around 17–18% and CET1 in the range of 13–15%, reflecting comparatively higher leverage. This substantial capital buffer is not merely conservative padding but a strategic asset. Management describes it as a “fortress balance sheet”—designed not just for resilience during economic downturns but also to provide agility to seize inorganic growth opportunities. The bank’s cautious approach to leverage underscores its long-term orientation, prioritizing stability and capital efficiency over short-term ROE maximization.

Disciplined Capital Deployment Strategy

Rather than indiscriminately utilizing capital, Kotak adheres to a structured framework for deployment:

• Inorganic Growth Readiness: The bank remains alert for M&A opportunities but stresses that acquisitions must be strategically and financially accretive, not just capital-fueled expansions. It emphasizes that capital will be deployed only when deals make sense, not for the sake of it. In FY25, it acquired Standard Chartered’s personal loan portfolio. 
• Allocation at high IRRs: Businesses are internally allocated capital at a hurdle rate of around 15%. This encourages operational efficiency and capital discipline across verticals.
• High-Return Investments: Excess capital is deployed in high-return alternate asset businesses, which have historically delivered returns in the high teens post-tax. Though lumpy and not visible quarter-to-quarter, these returns add meaningfully over the long term. 

This fortress approach to capital—supported by countercyclical business engines (banking, asset management, capital markets, and protection)—has enabled Kotak to:

• Navigate shocks (COVID-19, tech embargoes, microfinance volatility) while preserving profitability.
• Maintain a standalone RoA (return on assets) of 2.2% in FY25.

Diversified Financial Services Conglomerate

Kotak Mahindra Bank offers a wide array of financial services beyond traditional banking, including asset management, life insurance, general insurance, investment banking, and stockbroking. This integrated approach allows for cross-selling opportunities and provides a more holistic financial solution to customers, potentially leading to deeper customer relationships and diversified revenue streams.

• Kotak Mahindra Asset Management (Kotak AMC) is the 5th largest fund house in India based on its Quarterly Average Assets under Management (QAAUM) as of March 31, 2025. Company managed assets worth Rs. 4.68 trillion+, offering a wide array of mutual fund products across equity, debt, and ETFs tailored to diverse investor needs. The business demonstrated significant profitability, with a 77% year-on-year increase in profit after tax to Rs. 1,371 crore in FY25. This growth reflects both improved operating leverage and increasing investor participation. Kotak AMC has also made notable progress internationally. Its India-focused Mid Cap Fund, primarily distributed in Japan, and crossed USD 3 billion in assets, becoming one of the largest active India-dedicated equity funds globally. 
• Kotak Securities is a leading broking and investment services provider serving both retail and institutional clients across India. It is recognized as a top-tier institutional broker, catering to global and domestic institutional investors. The business is tightly integrated with Kotak Mahindra Capital, enabling end-to-end solutions across equity capital markets (ECM), including IPOs, QIPs, and M&A advisory. In FY25, Kotak Securities delivered a robust performance with a full-year profit after tax of Rs. 1,640 crore (+34% YoY), underscoring its strong market position and operational efficiency. With a diversified client base, cutting-edge digital platforms, and a 12.0% market share in Q4FY25, the company continues to be a significant player in India's capital markets.
• Kotak Mahindra Capital, the investment banking arm of Kotak Mahindra Group, continues to be a market leader in India’s Equity Capital Markets. In FY25, the firm retained its #1 ranking in equity capital market transactions for the third consecutive year, showcasing its strength in deal origination and execution. The company provides comprehensive services across equity issuances, mergers and acquisitions, and strategic advisory, catering to both domestic and global clients. In FY25, it reported a profit after tax of Rs. 361 crore (+68% YoY), indicating stable performance in a dynamic market environment. 
• Kotak Mahindra Life Insurance offers a wide range of protection and long-term savings solutions tailored to the evolving needs of customers. In FY25, the company continued to focus on profitable growth, customer-centric product innovation, and expanding its digital distribution capabilities. It reported a profit after tax of Rs. 769 crore (+12% YoY) in FY25, reflecting a moderated performance in a competitive environment. 
• Kotak Mahindra Prime, the vehicle financing arm of the Group, specializes in loans and leases for passenger cars and multi-utility vehicles. In FY25, the company recorded a 14% year-on-year increase in profit after tax to Rs. 1,015 crore, reflecting strong growth in disbursements. The business also offers dealer financing solutions through inventory funding and term loans. Its consistent profitability and conservative underwriting approach have made it a stable contributor to group earnings.
• Kotak Mahindra Investments focuses on structured credit solutions, including lending against securities, promoter funding, and real estate-backed loans. The business reported a profit after tax of Rs. 501 crore in FY25. The entity has carved a niche in the high-yield, secured lending segment, while maintaining a cautious approach to credit selection and risk management.

Management:

In banking, strong management is crucial for driving strategic direction, maintaining asset quality, and navigating regulatory complexities. Effective leadership ensures prudent risk management, capital allocation, and long-term value creation for stakeholders.

• Mr. Uday Kotak, Non-Executive Director: He is the Founder and Director of the Bank.  He was the Managing Director & CEO of the Bank till September 2023, prior to becoming Non-Executive Director. Mr. Kotak holds a Bachelor’s degree in Commerce and a MMS degree from Jamnalal Bajaj Institute of Management Studies, Mumbai. He is also the Non-Executive Chairman on the boards of subsidiaries of the Bank.
• Mr. Ashok Vaswani, Managing Director & CEO: He holds a B.Com (Economics and Accountancy) from Sydenham College is a Chartered Accountant, Company Secretary, and completed executive education at Stanford University GSB. He brings over 3 decades of proven experience, having held leadership roles at Citigroup and later at Barclays. 
• Ms. Shanti Ekambaram, Deputy Managing Director: She is a Commerce Graduate, a Chartered Accountant and a Cost and Works Accountant. She has been associated with the Kotak Mahindra Group for over 30 years and has been responsible for successfully setting up and running several business units.

Risks: 

• Credit Risk: It refers to the possibility that borrowers may fail to meet their repayment obligations, leading to financial loss for the bank. Unsecured lending like personal loans and credit cards typically carry higher credit risk, especially in a volatile macroeconomic environment. The bank manages this risk through conservative underwriting standards, regular portfolio monitoring, and sectoral exposure limits. Strengthening collection processes and data-driven credit assessments also help in mitigating potential defaults and maintaining asset quality over the long term.
• Market Risk: Arises from adverse movements in financial markets that can impact the bank’s earnings and capital. Key components include interest rate risk, liquidity risk, and foreign exchange risk. For Kotak Mahindra Bank, rising interest rates may compress margins or affect bond portfolios, while currency volatility could impact foreign operations or client exposures. The bank actively monitors these risks through its treasury operations and uses hedging strategies when necessary. A strong balance sheet, high capital adequacy, and diversified asset base enable Kotak to absorb market shocks and maintain financial stability across varying economic cycles.

Future outlook: 

• Next year management is guiding for advances growth in the range of ~1.5x to 2x of nominal GDP growth, implying 15-20% growth rate. This will be supported by- 
  • Home Loans & LAP (30% of loans): Secured portfolios continue to perform well with minimal delinquencies, providing stability to asset quality and helping anchor margins.
  • Personal Loans & Credit Cards (~10% of loans): The share of unsecured retail loans fell from 11.8% to 10.5% due to the RBI-imposed tech embargo that impacted 811 and credit card businesses. The bank expects these segments to recover post-relaunch of revamped apps and customer journeys.
  • Corporate Lending (22% of loans): Growth here was more cautious and focused. The bank maintained a disciplined Credit to deposit ratio of 85.5%, with strategic emphasis on selective corporate lending where risk-adjusted returns are favorable.
• Management highlighted that the bank continues to focus on “Bharat” markets—financing small and medium enterprises (SMEs), commercial vehicles (CV), construction equipment (CE), and agri-linked segments. Kotak remains one of the leading financiers for tractors, CVs, and CE among Indian banks, underscoring its strong franchise in this space.

Margins (NIMs) 

• Kotak Mahindra Bank reported a Net Interest Margin (NIM) of 4.96% for FY25, reflecting a year-on-year decline of 35 basis points. This contraction was primarily attributed to a higher cost of funds and a reduced share of high-yielding unsecured retail loans in the overall lending mix.
• Despite the annual dip, the bank saw a sequential improvement in margins during Q4FY25, with NIM rising to 4.97%. This recovery was driven by two key factors: reduction in savings account interest rates implemented in February 2025 and an increase in average current account balances, both of which helped ease funding costs. 
• Overall credit costs are expected to normalize in the coming quarters. While credit costs were elevated in certain pockets—particularly in the microfinance portfolio, which saw a sharp reduction in exposure—other segments like secured retail, SME, and corporate loans continue to demonstrate stable performance. The bank emphasized that its credit costs are well-anchored due to strong underwriting standards, prudent risk selection, and conservative provisioning policies. Barring the transitory impact in microfinance, the bank expects credit costs to trend back toward historical averages over the medium term, with no major surprises anticipated in asset quality. 
• We expect cost-to-income ratio to remain at similar levels (~47% on standalone basis) on continued investments in technology and digital infrastructure to scale operations. These strategic expenses, while pressuring near-term efficiency, are aimed at long-term growth and customer acquisition.
• The bank, like its peers has more than 50% EBLR (Repo rate) linked book exposure. Recent rate cut is moderately favorable for the bank as it will be able to attract funds at low cost and not take drastic cut in lending rates. 
• Going ahead margins will remain higher than peers on a) efficient liability strategy, b) focused on balanced loan mix; both aided by 811 accounts. 

Valuation:

Bank (standalone valuation basis):

Comparative to peers - 

KMB stands out compared to peers on- 

1. Profitability (highest Return on assets), a result of consistent high margins, one of the best in class asset quality as explained above, and operational efficiency. 
2. The return on equity looks low but is a result of low leverage. Low leverage helps company absorb shocks and stress in asset quality if any. This low leverage also means that in a situation where competition is weak, Kotak can grow by lending at favorable pricing. This results in long term compounding benefits. 

We expect Kotak to deliver 15%+ advances growth and maintain its profitability, further aided by lifting of RBI embargo.  Currently the company is trading near decadal low valuations and the risk reward is favorable. 

Details of RBI’s Restriction On Kotak Mahindra Bank

The Reserve Bank of India (RBI) on Wednesday directed Kotak Mahindra Bank to cease the issuance of fresh credit cards and the onboarding of new customers through its online and mobile banking channels, effective immediately. The bank was found to be lacking in IT risk and information security governance for two consecutive years.

The RBI also stated that it will review its restrictions following the completion of a comprehensive external audit, which the bank will commission with prior approval from the RBI.

Impact on Kotak Mahindra Bank

Credit card: Kotak has credit card market share of 5.8% (no. of cards) and spend market share of ~4%. No. of credit cards are growing at 21% YoY, and credit card book has grown at 33% CAGR post Covid to Rs 13,882 crore. The credit card portfolio of the bank constituted 3.7% of advances. 

Digital Lending: Kotak has lower branch network compared to other larger private banking peers & high reliance on online channels for new retail customer acquisition. 

In FY 2022-23, 72% of new Savings account were acquired by Kotak811 (digital) and over 50% of Credit Cards, Unsecured Loan, Trading Accounts and Recurring Deposits were cross sold to Kotak811 customers.

In the quarter ended December 2023, Kotak Mahindra Bank disbursed around 95% of new personal loans by volume and 99% of new credit cards digitally. Additionally, 79% of new business loans and 90% of new investment accounts were processed digitally. Furthermore, 76% of Fixed Deposit or Recurring Deposit Accounts were opened online.

The RBI action impacts its incremental growth of taking new customers digitally but not the existing offline growth. With unsecured lending, especially credit cards, becoming key focus areas of most banks, Kotak Mahindra Bank will lose the opportunity to add the high-yield and growing product to its overall mix. 

Advances grew by 17.9% YoY to 3.2 lakh Cr, deposits grew by 16.5% YoYto 3.6 lakh Cr, with CASA ratio at 52.8%.. Net Interest Income (NII) rose by 35% YoY and 8% QoQ to 6102 Cr. Net Interest Margin (NIM) for Q4FY23 was at 5.75% against 4.78% in Q4FY22.GNPA and NNPA stood at 1.78% and 0.37%. PAT grew 26.3% YoY, 25.2% QoQ to 3495 Cr.

Good results on account of loan book growth and NIM expansion.

Kotak MahindraBank Ltd
Market Cap 340,614Cr
CMP 1715
P/B 3.52

Click here for 10 year X-ray

Key Highlights –

·        Home Loans (28% of advances) grew by 29.4%, Retail Microfinance (1.7% of advances) grew by 121% , Credit Cards (2.9% of advances) grew by 85%, while SME (7.5% of advances) grew by 25%.

·        GNPA & NNPA at 1.9% and 0.43% vs. 2.71% and 0.79% in Q3 FY22.

·        CASA ratio declined by 6.6% to 53.3%. Due to higher increase of 22% in term deposits, while fixed saving deposits declining by 1%.

·        Profit from subsidiaries at 1203 Cr.

Management Outlook-

·         Management guided on increasing mix of unsecured retail side of assets to mid-teens in next 4-5 quarters.

·        Management guided on investing in technology and hire personnel to build digital franchise, leading to higher opex in coming quarters.

·        Management highlighted that NIM is expected to sustain at current levels by shifting the portfolio mix to a higher yielding advances.

Kotak Mahindra Bank | Market Cap: Rs 355,469 Cr

CMP 1794 | P/E 32x FY22

Recommendation | HOLD

Results: Kotak Mahindra Bank reported Net Interest income growth of 8% and deposit growth of 6.6% year on year. Loan book grew 2% year on year, yet another quarter of disappointment for a stock factoring high growth in valuation.

Click here to check 10 Year X-ray of Kotak Mahindra Bank

Key Highlights:

• Corporate loans declined 8% year on year while overall loans remained flat. Home loans grew 15% over previous year.
• Pre-provisioning operating profit grew by 25% year on year due to lower cost of funds and higher fee income. CASA now stands at 60% versus sub-45% for the industry, big positive for net interest margins and Return on Assets.
• Asset quality deteriorated as Gross NPA increased to 3.3% versus 2.3% in the previous quarter and 2.3% in previous year.

Outlook: The management believes the growth will improve once lockdown is lifted. NPA are in control. Currently bank is taking a safer route to lend only secured loans like home loans. 

MoneyWorks4me Opinion: Kotak Mahindra Bank has been lagging peers in growth in loans since last several quarters. One can say it’s quite prudent move in scenario when there are some obvious risks in the economy. However, on the other hand there is enough market that’s available for grabs as mid/small PSU Banks are likely to lose market share at rapid pace. The risk in Kotak Mahindra Bank comes from valuation as it trades at premium to HDFC Bank for similar quality and lower growth rate.

Kotak Mahindra Bank is conservatively managed bank with above average growth and average profitability. KMB and HDFC Bank are the only two banks with Greenest of Green colour code. 

We remain optimistic that private banks have healthy growth prospects as they increase their market share from public sector banks and NBFCs. Large private sector banks have strong liability profile CASA & Retail deposits > 80-85% of total liability. Wide distribution and superior technology will ensure they capture credit growth in the economy. We believe large private banks are now replicating HDFC Bank business model of right mix of consumer and corporate loans. This has made their business model more predictable and steady versus past. We are positive on all large cap banks including ICICI, Axis Bank for next 5 years. Every price correction is a buying opportunity for long term.

You may invest in Kotak Mahindra Bank closer to its MRP (1200-1300/sh) in place of one of our financials recommendations. Please ensure you do not exceed 20-25% of total portfolio in financials.

* Net Interest Income- Total interest earned by the bank on lent amount minus Total interest that it expended on its deposits.

**CASA- Current Account Saving Account is essentially the lowest cost funds that are available to the bank to lend. More the CASA, higher the amount of fund the bank can lend and earn interest on it.

 Kotak Mahindra Bank | Market Cap: Rs 355,469 Cr

CMP 1794 | P/E 32x FY22

Recommendation | HOLD

Results: Kotak Mahindra Bank reported Net Interest income growth of 17% and deposit growth of 11% year on year. Loan book were flat year on year, yet another quarter of disappointment for a stock factoring high growth in valuation.

Click here to check 10 Year X-ray of Kotak Mahindra Bank

Key Highlights:

• Secured loans have grown 9% year on year while overall loans remained flat.
• Pre-provisioning operating profit grew by 29% year on year due to lower cost of funds. CASA now stands at 59% versus sub45% for the industry, big positive for net interest margins and Return on Assets.
• Optically asset quality improved as Gross NPA was at 2.26% versus 2.46% in the previous year and 2.55% in previous quarter.
• If the SC orders were not considered, the GNPA number would have been 3.3% primarily from business loans, credit card and Commercial vehicles.

Outlook: . The management believes the growth will improve due to improving economic activity. Collections and disbursement has reached pre-covid levels. Elevated NPAs are largely behind and expect moderation. Restructuring is expected to be lower than the industry. This bodes well for future profitability and growth.

MoneyWorks4me Opinion:Kotak Mahindra Bank has been lagging peers in growth in loans since last several quarters. One can say it’s quite prudent move in scenario when there are some obvious risks in the economy. However, on the other hand there is enough market that’s available for grabs as mid/small PSU Banks are likely to lose market share at rapid pace. The risk in Kotak Mahindra Bank comes from valuation as it trades at premium to HDFC Bank for similar quality and lower growth rate.

Kotak Mahindra Bank is conservatively managed bank with above average growth and average profitability. KMB and HDFC Bank are the only two banks with Greenest of Green colour code. We remain optimistic that private banks have healthy growth prospects as they increase their market share from public sector banks and NBFCs. Large private sector banks have strong liability profile CASA & Retail deposits > 80-85% of total liability. Wide distribution and superior technology will ensure they capture credit growth in the economy. Currently we find other private sector banks are attractively priced while KMB is above our fair price.

You may invest in Kotak Mahindra Bank closer to its MRP (1200-1300/sh) in place of one of our financials recommendations. Please ensure you do not exceed 20-25% of total portfolio in financials.

* Net Interest Income- Total interest earned by the bank on lent amount minus Total interest that it expended on its deposits.

**CASA- Current Account Saving Account is essentially the lowest cost funds that are available to the bank to lend. More the CASA, higher the amount of fund the bank can lend and earn interest on it.