Kotak Mahindra Bank Ltd Q2 FY2026 Concall Summary

Key Takeaways

• NIM compressed 11 bps QoQ to 4.54% as the full 50-bps repo cut hit, but cost of funds fell 31 bps and management expects gradual improvement from Q3 onward, assuming no further rate cuts.
• Credit costs are turning the corner: down to 79 bps from 93 bps QoQ, with personal loans normalized, MFI past its peak, and credit cards now improving; H2 is expected to be better than H1.
• The unsecured rebuild is deliberate, not urgent: credit card issuance has resumed and new products are launching, but management will take another quarter to get it right rather than chase volume, while MFI disbursements are already turning positive.
• Operating expenses are flat YoY and down 3% QoQ on automation-driven payroll savings and lower variable acquisition costs, even as technology spend holds at 12–14% of OPEX.
• What to watch next quarter: whether NIM actually inflects upward as term deposits reprice, the pace of credit card and MFI portfolio rebuild, and any stabilization in the commercial vehicle retail stress pool.

Margin Dynamics

• The repo cut flowed through fully: NIM fell 11 bps QoQ to 4.54% because the 50-bps repo reduction from 15 June hit the asset side immediately, while deposit repricing lags. Cost of funds dropped 31 bps, driven by the full-quarter impact of the savings account rate cut executed late in Q1 and term deposits repricing on maturity.
• Savings account cost reset is largely done: fixed-rate SA now aligned with peers at 2.5%, and the floating-rate SA book shrank from ~₹19,000 crore to ~₹14,000 crore. Overall SA cost sits at 2.89%, with the residual premium coming from staff accounts and the remaining floating-rate pool at 5.5–6%.
• Term deposit repricing is the next lever: the average book is 9–12 months, and the bank started reducing TD rates in April–May. Management expects to reprice the book by Q4 or at most Q1 next year, which should support a gradual margin improvement from Q3–Q4, with the March 2026 exit margin higher than current levels.
• Asset mix shift also weighed: a change in asset mix contributed to the NIM compression alongside the rate impact.
• Further repo cuts would reopen the playbook: if the RBI cuts again, levers include further TD rate reductions and possibly another SA rate move, but that depends on market conditions and peer actions.

Devang Gheewalla: "If I look at the pure payroll cost, we are seeing a sizable reduction in the payroll cost with the headcount remaining more or less flat. So, that is the benefit on efficiency and the automation which we have got."

Asset Quality & Credit Cost Trajectory

• The headline improvement is real and broad: credit costs fell from 93 bps to 79 bps sequentially, with the decline concentrated in the three pools that had been under pressure. Personal loan credit costs have normalized and significantly reduced. MFI peaked in Q1 and declined in Q2. Credit cards plateaued last quarter and are now getting better.
• The write-off of ~₹1,100 crore was a combination of personal loan, credit card and MFI, executed per the bank's 180/270-day policy and not skewed to any one segment.
• Commercial vehicles remain the outlier: retail CV continues to show higher stress, and management has tightened underwriting and reduced disbursements over several quarters. The stressed portion of the retail CV book is not very large, but because it is a five-year underwriting book, the stress will take time to wear off, with credit costs possibly seeing a remaining or slight increase for the next couple of quarters before gradually declining.
• Construction equipment weakened with negative 7% YoY growth in H1, driven by fewer new project awards, delayed infrastructure execution from tight state government cash flows, and an early and extended monsoon. A post-monsoon recovery is expected with festive demand and renewed government spending.
• Tractor finance grew 31% YoY on favorable monsoon and better rural cash flows, though collection efficiency faced pressure from the extended monsoon. With healthy reservoir levels, the industry is expected to continue doing well.
• Microfinance is turning: the retail microcredit book contracted QoQ as repayments outpaced disbursements, but early indicators from the risk-based underwriting model are encouraging. The industry trend is expected to reverse and gradually pick up from Q3, with positive disbursement trends continuing through H2.

Ashok Vaswani: "Personal loans, it is already kind of normalized. MFI, we said last time we believed that Q1 was at peak... we have seen a decline in Q2. Credit card, last time we had said it plateaued, this time we are saying it is getting better."

Unsecured Portfolio Rebuild

• Credit cards are back but ramping slowly: the embargo prevented new card issuance last year, and the portfolio declined ~4% QoQ. Issuance has now resumed, with the newly launched Solitaire credit card gaining traction and the IndiGo card relaunched. Spend began picking up in late September after a quiet August.
• Management is prioritizing quality over speed: the bank wants to build the card business "in the right way" and is willing to take another quarter if needed rather than do anything aggressive. Product costs will rise as cards pick up, but income from additional acquisition will offset that.
• MFI rebuild is a three-stage process: Stage I is making MFI and cards positive in rupee terms, which management hopes to achieve shortly. Stage II is crossing into double-digit unsecured mix, for which no specific timeline was given. Stage III is pushing higher over the longer term. Secured asset growth will not be held back just to improve the unsecured percentage.
• Personal loans are already growing organically: disbursements are driven by the salaried segment and digital channels, with strong momentum from the surge in consumption after GST changes.

Ashok Vaswani: "I am definitely not going to hold back secured asset growth just to make the percentage kind of improve. I think this will be like a 3-stage process."

Operating Efficiency & Cost Control

• OPEX is flat YoY and down 3% sequentially: the pure payroll cost saw a sizable reduction while headcount remained flat, a direct result of efficiency and automation. A one-time retiral benefit from a change in the discounting rate (driven by G-Sec yields) also helped.
• Variable costs are structurally lower for now: credit card acquisition costs and rewards costs are down because card volumes are lower, and MFI banking correspondent costs are lower because outstandings have shrunk. Management noted it wishes these expenses were higher, since they would signal growth. Marketing spend may have shifted to Q3.
• Technology investment is sustained at 12–14% of total OPEX: the bank attributes its point-to-point single-digit OPEX growth since the digital ban (versus double digits at HDFC and ICICI) to heavy technology investment enabling automation, digitization, decongestion, declutterization and devoucherization.
• Cost-to-asset ratio has been managed despite the balance sheet growing at 14–15% on average, because the quality of spends is high: 12–14% on IT, the remaining ~85% on other areas. Benefits from automation and digitization are expected to continue.

Deposits, CASA & Franchise Building

• CASA growth is granular and measured on averages: savings accounts grew 8% and current accounts 14% on an average basis, which management considers the relevant metric rather than end-of-period, deal-based balances.
• Three levers drive the deposit strategy: consumption-led, investment-led and asset-led growth, with branches and digital/virtual distribution working in synergy. The self-employed customer base is the focus for current accounts, while high net worth, mass affluent and core segments are targeted for savings accounts.
• Kotak Solitaire was launched as a proposition targeting HNI and mass affluent segments for both liability mobilization and credit cards.
• Kotak 811 ranks as the third most downloaded banking app globally and the topmost in India, underscoring the digital franchise's reach.
• ActivMoney balances declined as customers utilized funds for liquidity purposes across both CA and SA levels.
• The Standard Chartered portfolio acquired last year is performing in line with expectations.

Wholesale, Subsidiaries & Fee Income

• Wholesale banking grew across customer segments with a focus on granular growth via SME and mid-market. Almost all growth came from working capital and flow-based businesses, while pricing remains challenging in the larger corporate space, especially long-term and project finance.
• Non-lending group subsidiaries contributed 19% to consolidated profits versus 24% last year, which had an exceptional Q2 for capital markets. This quarter also had a one-off GST impact of ₹165 crore on KLI profit.
• Capital market subsidiary profits fell due to a dip in volumes across both cash and derivative markets this quarter.
• Fee income grew healthily led by higher processing fees and syndication revenue. FX revenue was muted as exports plateaued amid tariff uncertainty, and custody balances were muted due to net equity outflows from geopolitical uncertainties.
• The BSS and Sonata merger was consummated on October 11, 2025, building a unified national franchise.
• The investment bank ranked #1 in equity capital markets for the third consecutive year and was selected as banker to 13 mainboard IPOs raising ₹17,900 crore.

Capital & Regulatory

• Excess capital deployment follows a clear hierarchy: operating businesses get the first call at 15% capital. Excess is deployed into KAAML (skin in the game, decent after-tax returns but lumpy), financial infrastructure investments like MCX and KFIN, and a constant scan for inorganic opportunities across life insurance, brokerage, AMC and portfolio tuck-in acquisitions within the bank. Buybacks are not allowed.
• Management pushed back on deploying capital for its own sake: just because excess capital exists does not mean the bank should pursue opportunities that do not make sense.
• ECL guidelines remain at the draft stage with a November 10 deadline for suggestions. Given high capitalization, any additional provisions would be comfortably absorbed by current capital adequacy. Management declined to quantify any RWA reduction impact, waiting for final guidelines.
• An AIF provision write-back of ₹50 crore was taken due to revised RBI guidelines, which now require provisioning on the lower of exposure versus investment.

Ashok Vaswani: "The way we think about capital is the first call on capital. The first call on capital is always that of the business. Operating businesses have the first call on capital. If they go faster, they get it."

Guidance & Commitments

Key Metrics