Kotak Mahindra Bank Ltd Q1 FY2026 Concall Summary

Key Takeaways

• NIM compressed sharply, bottom expected in Q2: NIM fell 37 bps YoY to 4.65% as the 100 bps repo cut hit yields faster than deposit costs repriced; management expects stabilization in H2.
• Asset quality stress concentrated but peaking: MFI drove the credit cost spike and appears to have peaked; credit card stress is plateauing; personal loans stabilized; only retail CV may see one more quarter of pressure.
• Embargo unwind is a slow restart, not a switch: 811 customer acquisition resumed strongly, but credit card issuance is ramping slower than planned, and a one-time clean-up of blocked accounts depressed market share this quarter.
• Unsecured mix deliberately shrunk: The unsecured book fell from 11.6% to 9.7% of assets as underwriting tightened; the aspiration is to rebuild toward 15% over time, led by MFI and PL first, then cards.
• What to watch next quarter: Whether NIM bottoms as guided, the pace of MFI credit cost decline, and any pickup in credit card issuance trajectory after the slow restart.

Margin Trajectory & Rate Sensitivity

• Repo cuts hit advances faster than deposits reprice: The entire repo-linked book reprices within ~3 months of a cut, while term deposits take 3–4 quarters to reprice by maturity. The June 50 bps cut had only 15 days of impact in Q1; the full effect lands in Q2.
• SA rate cut provides partial offset: The savings account rate cut from 3.25% to 2.5% will flow through in Q2, contributing ~10 bps of funding cost decline already visible in Q1. MIBOR-linked high-cost SA balances also reduced, shifting mix toward fixed-rate SA.
• Q4 NIM had a calendar quirk: Part of the 32 bps QoQ NIM decline came from a system calculation benefit on interest for the retail book in Q4 (number of days count) that reversed in Q1. No other one-offs.
• CRR cut benefit still ahead: The CRR reduction starts kicking in from September, adding another tailwind from Q3 onward.

Devang Gheewalla: "Q2, it is likely to bottom out before the repricing and the CRR benefits start accruing from Q3 and Q4."

Asset Quality: Stress by Segment

• Corporate recoveries are the swing factor: Lower recoveries from a legacy corporate customer book also lifted credit cost QoQ; this is not annuity and can swing either way in future quarters.

Ashok Vaswani: "MFI credit cost were a significant contributor to the overall credit cost increase. However, it appears to have peaked and is expected to show a declining trend in the coming quarters."

Business Growth: Secured Leads, Unsecured Resets

• Mortgages grew 19% YoY on a strong Q1, though management flagged irrational and highly competitive pricing in home loans. LAP market remains strong on self-employment segment strength.
• Wholesale banking grew 13% YoY, driven by granular SME and mid-markets; GIFT City had a strong quarter. Select SME accounts migrated to other corporate bank verticals, making quarters not strictly comparable.
• 811 relaunch gaining traction: Customer acquisition resumed strongly post-embargo; migration to the new dedicated app is progressing well. A brand campaign lifted Spont Score 6 percentage points to 54%.
• Credit card ramp-up is behind plan: Re-embarked on issuances but trajectory slower than envisaged. Solitaire and IndiGo cards launched for the affluent segment; more product launches are coming. Cards will be grown "quite aggressively going forward."
• Gold loan branches consolidated, book still grew: Exited ~20% of gold loan branches in low-growth towns last year; despite the reduction, the book grew 30%+ YoY, now concentrated in 488 branches with stronger operational and tech capability.
• Consumer assets growth led by secured: Overall slowdown in urban consumption impacted certain areas; unsecured share deliberately reduced from 11.6% to 9.7% as underwriting norms tightened.

Ashok Vaswani: "Aspirationally, we would like our retail unsecured book to be at 15%, always in line with our guidance."

Liabilities & Deposits

• Average deposits grew 13% YoY and 5% QoQ; CASA ratio stood at 40.9%. Fixed-rate savings grew 9% YoY as mix shifted away from MIBOR-linked floating SA.
• Current account grew 16% YoY, driven by self-employed NTB traction and wholesale granular deals including escrow and dividend mandates. Offshore custody flows were subdued on FPI net selling and a muted IPO market.
• SA balance dynamics: Total SA balance moved from ₹1.32 lakh crore (Mar 31) to ₹1.28 lakh crore (Jun 30), but the quarterly average was ~₹1.24 lakh crore. Management directed analysts to disclosures for reconciliation and did not fully explain the gap on the call.
• Cost of funds declined ~8–9 bps QoQ, with the 50 bps SA rate cut explaining ~10 bps. Term deposit repricing is not yet reflected given the 9–12 month average tenure.

Operating Costs & Investments

• OPEX grew 6% YoY against 14% loan growth. The mix is shifting: IT spend now 13.5% of opex, payroll cost growth is slowing, and retiral costs rose due to lower interest rates.
• Acquisition costs will rise as 811 customer onboarding and new credit card issuance restart, but management notes these bring income alongside the cost. Marketing spend increased on the 811 campaign relaunch.
• Fees and services income was impacted by lower credit card fees and lower deal-based income, both linked to the embargo period.
• IT efficiency green shoots visible: Payroll cost growing at a much lower pace as tech investments start delivering efficiency; the fyn platform now allows small SME customers to track personal and business accounts in one app.

Strategic Initiatives & Subsidiaries

• Kotak Solitaire programme launched for affluent customers, offering pre-approved products across the group (investments, protection, credit card, personal loans, business loans). Initial response encouraging.
• Asset Management AUM grew 25% on the savers-to-investors trend. Kotak Securities gained market share in both cash and derivatives. Investment banking (KMCC) has a very healthy pipeline as corporates tap capital markets.
• BSS and Sonata merger underway, expected to complete by Q2 FY26, creating an integrated microfinance franchise with national footprint.
• Global Custody operational from GIFT branch; client onboarding has begun.
• MFI underwriting model overhauled: Joint liability group model replaced with individual risk-based underwriting. Management says the new models indicate acceptable risk and loss rates.

Ashok Vaswani: "What we have done is that we have replaced the joint liability group model with individual underwriting risk-based models... the models seem to indicate that that works into a very acceptable level of risk and loss rates."

Guidance & Commitments

Key Metrics