The quarter witnessed a complex interplay of operational headwinds and balance sheet pressures. Whilst net interest income grew modestly by 0.71% quarter-on-quarter to ₹7,310.74 crores, the bank's profitability was constrained by a sharp 43.50% sequential surge in provisions to ₹947.42 crores from ₹660.39 crores in Q3 FY25. More concerning was the continued compression in net interest margins, which fell to 4.54% from 4.65% in the previous quarter and 4.91% a year ago, reflecting intensifying competitive pressures in the lending landscape.
Total income for Q3 FY26 declined 4.01% sequentially to ₹16,238.59 crores, primarily driven by a 15.93% drop in other income to ₹2,589.18 crores from ₹3,079.98 crores in Q2 FY26. Interest earned remained relatively stable at ₹13,649.41 crores, down marginally from ₹13,836.54 crores in the preceding quarter. The CASA ratio deteriorated to 42.3% from 43.6% a year ago, indicating challenges in mobilising low-cost deposits in a competitive environment.
| Metric | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|
| Interest Earned (₹ Cr) | 13,649 | 13,837 | 13,530 | 13,428 | 13,216 | 12,746 |
| Net Interest Income (₹ Cr) | 7,311 | 7,259 | 7,284 | 7,196 | 7,020 | 6,842 |
| Net Profit (₹ Cr) | 3,253 | 3,282 | 3,552 | 3,305 | 3,344 | 3,566 |
| NIM (%) | 4.54% | 4.65% | 4.97% | 4.93% | 4.91% | 5.02% |
| Gross NPA (%) | 1.39% | 1.48% | 1.42% | 1.50% | 1.49% | 1.39% |
| CASA Ratio (%) | 42.3% | 40.9% | 43.0% | 42.3% | 43.6% | 43.4% |
Financial Performance: Margin Compression Weighs on Earnings
The most pressing challenge facing Kotak Mahindra Bank remains the sustained compression in net interest margins, which have declined from a peak of 5.28% in March 2024 to 4.54% in the latest quarter. This 74 basis point erosion over six quarters reflects both competitive intensity in loan pricing and rising cost of funds. Interest expended declined 3.63% quarter-on-quarter to ₹6,338.67 crores, yet this reduction was insufficient to offset the pressure on asset yields.
Net interest income growth of 4.15% year-on-year to ₹7,310.74 crores demonstrates the bank's ability to expand its core lending franchise, with advances growing to ₹4,26,909 crores as of March 2025 from ₹3,76,075 crores a year earlier, representing a robust 13.51% annual growth. However, the sequential NII growth of just 0.71% signals decelerating momentum in the bank's bread-and-butter business.
Operating profit before provisions declined 5.31% sequentially to ₹5,268.27 crores, impacted by the 15.93% drop in other income. This non-interest income volatility, particularly the sharp decline from ₹6,448.94 crores in June 2024, highlights the bank's dependence on fee-based revenues and treasury gains, which can be unpredictable quarter-to-quarter. The tax rate remained steady at approximately 24.70%, with tax expenses of ₹1,067.52 crores on profit before tax of ₹4,320.85 crores.
Asset Quality: Gradual Improvement Masks Provision Surge
On the asset quality front, Kotak Mahindra Bank demonstrated marginal improvement with gross non-performing assets declining to 1.39% from 1.48% in the previous quarter and 1.49% a year ago. Net NPAs also improved to 0.32% from 0.34% sequentially and 0.43% year-on-year, reflecting the bank's disciplined credit underwriting and recovery efforts. The provision coverage ratio remained robust at 77.0%, unchanged from the previous quarter, providing a comfortable cushion against potential loan losses.
However, the 43.50% year-on-year surge in provisions and contingencies to ₹947.42 crores from ₹660.39 crores in Q3 FY25 raises questions about underlying asset quality trends. This sharp increase suggests either pre-emptive provisioning for stressed accounts or recognition of fresh slippages that may not yet be fully reflected in the reported NPA ratios. The bank's conservative approach to provisioning, whilst prudent from a risk management perspective, has directly impacted bottom-line profitability.
Asset Quality Monitoring Required
Whilst headline NPA ratios show improvement, the 43.50% year-on-year surge in provisions warrants close monitoring. Investors should track whether this represents one-time adjustments or signals emerging stress in specific loan portfolios. The provision coverage ratio of 77.0%, though healthy, leaves room for further buffer building if asset quality pressures intensify in a slowing economic environment.
Capital Adequacy: Fortress Balance Sheet Provides Cushion
Kotak Mahindra Bank's capital position remains a significant strength, with the total capital adequacy ratio at 22.05% and Tier 1 ratio at 20.9% as of September 2025, well above regulatory requirements. This robust capitalisation provides substantial headroom for balance sheet expansion and absorbs potential shocks from asset quality deterioration. The bank's shareholder funds stood at ₹1,17,239.89 crores as of March 2025, up from ₹96,718.75 crores a year earlier, reflecting steady capital accretion through retained earnings.
The return on equity, however, has moderated to 10.70%, significantly below the bank's historical performance and trailing key private sector peers such as ICICI Bank (15.31%) and HDFC Bank (13.58%). This lower ROE reflects both the margin compression challenges and the bank's conservative capital deployment strategy. With a book value per share of ₹589.2, the stock trades at a price-to-book multiple of 3.35x, commanding a premium valuation despite the subdued profitability metrics.
| Capital Metric | Sep'25 | Jun'25 | Mar'25 | Dec'24 |
|---|---|---|---|---|
| Total CAR (%) | 22.05% | 23.0% | 22.25% | 22.79% |
| Tier 1 CAR (%) | 20.9% | 21.8% | 20.5% | 21.7% |
| ROE (%) | 10.70% | - | - | - |
| ROA (%) | 1.89% | - | - | - |
Peer Comparison: Premium Valuation Despite Lagging Profitability
When benchmarked against private sector banking peers, Kotak Mahindra Bank's performance metrics present a mixed picture. The bank's return on equity of 10.70% trails ICICI Bank (15.31%), HDFC Bank (13.58%), IDBI Bank (13.99%), and Axis Bank (12.80%), positioning it towards the lower end of the peer group. This profitability gap is particularly pronounced given Kotak's premium valuation, with a price-to-earnings ratio of 31.36x compared to the peer average of approximately 23x.
The price-to-book multiple of 3.35x is the highest among major private banks, exceeding ICICI Bank (3.00x), HDFC Bank (2.62x), and Axis Bank (2.06x). This valuation premium appears difficult to justify given the current profitability trajectory and margin compression challenges. The dividend yield of 0.12% is also amongst the lowest in the peer group, with HDFC Bank offering 1.47% and IDBI Bank 2.15%, limiting the stock's appeal to income-focused investors.
| Bank | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) | Market Cap (₹ Cr) |
|---|---|---|---|---|---|
| Kotak Mah. Bank | 31.36 | 3.35 | 10.70% | 0.12% | 4,23,280 |
| HDFC Bank | 19.30 | 2.62 | 13.58% | 1.47% | - |
| ICICI Bank | 19.58 | 3.00 | 15.31% | 0.82% | - |
| Axis Bank | 16.09 | 2.06 | 12.80% | 0.08% | - |
| IDBI Bank | 10.89 | 1.52 | 13.99% | 2.15% | - |
| IDFC First Bank | 48.83 | 1.54 | 3.15% | 0.21% | - |
The advance-to-deposit ratio of 86.38% indicates healthy loan deployment, though it leaves limited room for aggressive balance sheet expansion without corresponding deposit mobilisation. The bank's cost-to-income ratio averaging 46.16% over the long term suggests operational efficiency, though quarterly variations in other income can distort this metric. Overall, Kotak's market positioning as India's third-largest private bank by market capitalisation reflects its franchise strength, but the valuation premium demands superior execution on profitability metrics.
Valuation Analysis: Expensive Multiples Limit Upside Potential
At the current market price of ₹422.20, Kotak Mahindra Bank trades at a trailing twelve-month P/E ratio of 31.36x, representing a significant premium to both its private sector banking peers and its own historical averages. The price-to-book value of 3.35x appears stretched, particularly when juxtaposed against the bank's 10.70% return on equity, implying a P/E to ROE ratio exceeding 2.9x—well above the ideal threshold of 2.0x for fairly valued financial institutions.
The stock has delivered a one-year return of 11.42%, outperforming the Sensex's 6.56% gain by 486 basis points. However, over longer timeframes, the performance has been underwhelming, with three-year returns of 18.38% significantly lagging the Sensex's 33.80% advance. The stock currently trades 8.28% below its 52-week high of ₹460.31 and 13.40% above its 52-week low of ₹372.30, suggesting limited near-term upside given the valuation concerns and earnings headwinds.
Valuation Dashboard
P/E Ratio (TTM): 31.36x (Premium to peers)
Price to Book: 3.35x (Highest among major private banks)
Dividend Yield: 0.12% (Below peer average)
Mojo Score: 67/100 (HOLD rating)
Fair Value Estimate: ₹390-₹410 (7.5% downside from current levels)
The proprietary Mojo score of 67/100 places the stock in "HOLD" territory, reflecting a balanced assessment of quality (Excellent grade) against expensive valuation and flat near-term financial trends. The valuation grade has evolved from "Very Expensive" to "Expensive" as of October 2025, yet remains a significant concern. With the stock trading below multiple moving averages and technical indicators showing a "Mildly Bullish" trend, the risk-reward equation favours caution for fresh investors.
Shareholding Pattern: Institutional Flux Signals Uncertainty
The shareholding pattern for December 2025 reveals significant institutional repositioning, with a dramatic shift in the classification of domestic institutional investors. Foreign institutional investors' reported holding declined sharply to 0.01% from 29.75% in the previous quarter, whilst other DII holdings surged to 31.97% from 2.23%, suggesting a reclassification rather than genuine selling pressure. Promoter holding remained stable at 25.87%, with Uday Suresh Kotak holding 25.7% of the bank.
Mutual fund holdings increased to 21.18% from 20.77% sequentially, indicating continued accumulation by domestic fund managers. Insurance company holdings rose marginally to 9.07% from 9.01%, whilst non-institutional shareholding declined to 11.89% from 12.36%. The increase in mutual fund exposure reflects confidence in the bank's long-term franchise value, though the muted near-term earnings trajectory may test this conviction.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 25.87% | 25.88% | 25.88% | -0.01% |
| FII | 0.01% | 29.75% | 32.34% | -29.74% |
| Mutual Funds | 21.18% | 20.77% | 18.35% | +0.41% |
| Insurance | 9.07% | 9.01% | 9.32% | +0.06% |
| Other DII | 31.97% | 2.23% | 1.94% | +29.74% |
| Non-Institutional | 11.89% | 12.36% | 12.17% | -0.47% |
With 49 mutual funds and 7 FIIs holding positions in the bank, institutional ownership remains substantial at over 62%, providing stability to the stock price. The absence of promoter pledging reinforces governance confidence, whilst the concentrated promoter holding of 25.87% ensures alignment of management interests with shareholders. However, the recent institutional repositioning warrants monitoring for any emerging concerns about the bank's medium-term outlook.
Stock Performance: Underperforming Sector Amidst Volatility
Kotak Mahindra Bank's stock has delivered a one-year return of 11.42%, outperforming the Sensex by 486 basis points but underperforming the private sector banking index, which gained 15.17% over the same period. This 375 basis point underperformance versus the sector reflects investor concerns about the bank's margin compression and muted earnings growth trajectory. The stock's beta of 1.00 indicates it moves in line with the broader market, offering no diversification benefits for portfolio construction.
Year-to-date performance has been challenging, with the stock down 4.08% compared to the Sensex's 4.32% decline, marginally outperforming by 24 basis points. Over three-month and six-month periods, the stock has underperformed significantly, declining 5.13% and 2.75% respectively, against the Sensex's 3.57% and 1.44% losses. This recent weakness reflects growing investor scepticism about the bank's ability to reignite profitability growth in a competitive lending environment.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 0.94% | -2.43% | +3.37% |
| 1 Month | -2.35% | -4.66% | +2.31% |
| 3 Months | -5.13% | -3.57% | -1.56% |
| 6 Months | -2.75% | -1.44% | -1.31% |
| YTD | -4.08% | -4.32% | +0.24% |
| 1 Year | 11.42% | 6.56% | +4.86% |
| 2 Years | 18.31% | 15.87% | +2.44% |
| 3 Years | 18.38% | 33.80% | -15.42% |
The technical picture remains mixed, with the stock currently in a "Mildly Bullish" trend since January 13, 2026, after transitioning from a "Bullish" phase. The stock trades below its 5-day, 20-day, and 50-day moving averages, suggesting near-term weakness, though it remains marginally above its 100-day and 200-day moving averages. With immediate resistance at ₹428.90 (20-day MA) and support at ₹372.30 (52-week low), the trading range appears constrained, limiting near-term upside potential.
Investment Thesis: Quality Franchise, Challenged Execution
Kotak Mahindra Bank's investment case rests on its "Excellent" quality grade, reflecting strong long-term fundamentals with an average return on assets of 2.10% and consistent net interest income growth of 15.58% over five years. The bank's net profit has compounded at 16.31% annually over the past five years, demonstrating resilient franchise strength. However, the current financial trend is classified as "Flat," with the September 2025 quarter showing mixed signals—highest net interest income and lowest gross NPAs offset by declining earnings and elevated provisions.
The Mojo 4 Dots analysis reveals a nuanced picture: Near-term drivers are "Neutral" with flat quarterly financial trends and mildly bullish technicals; Quality remains "Excellent" based on long-term performance; Valuation is "Expensive" at 31.36x P/E; and the overall assessment is "Cautious" given mixed signals across parameters. The proprietary score of 67/100 reflects this balanced view, acknowledging franchise strength whilst recognising near-term execution challenges and valuation constraints.
Mojo Investment Parameters
Near-Term Drivers: Neutral (Flat financial trend, Mildly Bullish technicals)
Quality Grade: Excellent (Strong long-term ROA and profit growth)
Valuation: Expensive (31.36x P/E, 3.35x P/BV)
Financial Trend: Flat (Mixed Q3 FY26 performance)
Technical Trend: Mildly Bullish (Recent trend change)
Key Strengths & Risk Factors
Key Strengths
- Fortress Balance Sheet: Capital adequacy ratio of 22.05% and Tier 1 ratio of 20.9% provide substantial buffer for growth and stress absorption
- Improving Asset Quality: Gross NPA declining to 1.39% from 1.49% YoY, with net NPA at just 0.32% and provision coverage of 77%
- Strong Franchise Value: Third-largest private bank by market cap with diversified business model across retail, corporate, and investment banking
- Healthy Loan Growth: Advances grew 13.51% YoY to ₹4.27 lakh crores, demonstrating robust credit demand across segments
- Institutional Confidence: High institutional holdings at 62.24% with increasing mutual fund participation signals long-term conviction
- Zero Debt Leverage: Debt-to-equity ratio of 0.0 ensures financial flexibility and reduced refinancing risks
- Long-Term Track Record: Net profit CAGR of 16.31% over five years demonstrates consistent wealth creation capability
Key Concerns
- Persistent Margin Compression: NIM declined to 4.54% from 5.28% in March 2024, eroding core profitability by 74 basis points
- Lagging ROE: Return on equity of 10.70% significantly trails peers ICICI Bank (15.31%) and HDFC Bank (13.58%)
- Provision Surge: 43.50% YoY increase in provisions to ₹947.42 crores raises questions about underlying asset stress
- Premium Valuation: Trading at 31.36x P/E and 3.35x P/BV despite subdued profitability metrics limits upside potential
- CASA Erosion: Low-cost deposit ratio declined to 42.3% from 45.5% in March 2024, pressuring funding costs
- Volatile Other Income: Non-interest income declined 15.93% QoQ, highlighting dependence on unpredictable fee and treasury revenues
- Sector Underperformance: One-year return of 11.42% trails private banking index gain of 15.17% by 375 basis points
Outlook: What to Watch in Coming Quarters
Positive Catalysts
- NIM Stabilisation: Any reversal in margin compression trend would significantly boost earnings trajectory and investor sentiment
- ROE Improvement: Initiatives to enhance capital efficiency and bring ROE closer to 13-14% would justify premium valuation
- CASA Ratio Recovery: Success in mobilising low-cost deposits would improve funding mix and support margin expansion
- Credit Growth Momentum: Sustained loan growth above 12-13% without compromising asset quality would drive earnings
- Fee Income Stability: Consistent growth in fee-based revenues would reduce earnings volatility and improve quality
Red Flags to Monitor
- Further NIM Decline: Continued compression below 4.50% would severely impact profitability and trigger valuation de-rating
- Rising Slippages: Increase in fresh NPA formation despite improving headline ratios would signal underlying stress
- Provision Normalisation: If provisions remain elevated above ₹900 crores quarterly, it would constrain earnings growth
- Competitive Intensity: Market share losses to larger peers in key segments would threaten franchise value
- Valuation Correction: Any re-rating towards peer multiples (19-20x P/E) would result in 35-40% downside from current levels
"Kotak Mahindra Bank's excellent long-term franchise value confronts near-term execution challenges—margin compression and muted profitability growth at premium valuations create a cautious risk-reward equation for investors."
The path forward for Kotak Mahindra Bank hinges on management's ability to arrest margin compression whilst maintaining asset quality discipline. The bank's robust capital position provides strategic flexibility to navigate competitive pressures, yet the current valuation leaves little room for disappointment. Investors should closely monitor quarterly NIM trends, provision requirements, and ROE trajectory to assess whether the premium valuation can be sustained.
For existing shareholders, the excellent quality grade and strong institutional ownership provide reasons to maintain positions, particularly for those with a three-to-five-year investment horizon. However, fresh investors may find better risk-adjusted opportunities elsewhere in the private banking space, given the combination of expensive valuations, margin headwinds, and execution uncertainties. The stock's recent underperformance versus sector peers underscores the market's scepticism about near-term catalysts.
Investment Verdict: Quality Franchise at Crossroads
Mojo Score: 67/100
For Fresh Investors: Avoid initiating positions at current valuations. The stock trades at a significant premium (31.36x P/E, 3.35x P/BV) to both peers and its own fundamentals, with margin compression and muted earnings growth offering limited near-term catalysts. Better entry points may emerge if the stock corrects towards ₹380-₹390 levels, offering a more favourable risk-reward equation. Consider accumulating only if valuations moderate to 25-27x P/E or if management demonstrates tangible progress on margin stabilisation.
For Existing Holders: Continue to hold given the bank's excellent quality grade, robust capital position, and long-term franchise strength. The current "Flat" financial trend and expensive valuation warrant caution against adding to positions. Maintain holdings with a three-to-five-year horizon, monitoring quarterly progress on NIM stabilisation, ROE improvement, and provision normalisation. Consider partial profit booking if the stock rallies above ₹450, as upside appears limited given valuation constraints.
Fair Value Estimate: ₹390-₹410 (7.5% downside from current price of ₹422.20)
Note: ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. The analysis presented is based on publicly available information as of January 24, 2026, and market conditions may change materially thereafter.
