Kotak Mahindra Bank Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Steady quarter, credit costs easing: Net advances grew 16% YoY, NIM held healthy at 4.54%, and credit costs continued their downward trend to 63 bps, though the pace of normalization is expected to moderate.
• Deposit franchise strengthening: Cost of funds fell 16 bps QoQ to 4.54%, driven by low-cost deposit growth and term deposit repricing, while current account balances grew 14% YoY through focused effort.
• Unsecured retail turning the corner: Delinquencies are improving across personal loans, credit cards, and microfinance, supported by better analytics and collections; the acquired Standard Chartered book is running down faster than expected.
• One-offs masked underlying cost discipline: Operating expenses included INR 96 cr in new labour code provisions and seasonal marketing spends; payroll costs were flat QoQ, and the cost-to-assets trend continues to decline toward a 2.5–2.6% target range.
• What to watch next quarter: Whether the retail CV portfolio plateaus as management hopes, the pace of term deposit repricing benefit as it nears completion, and any further rate cut impact on NIM.

Credit Quality: The Normalization Story

• Credit costs on a clear downward path: The trajectory moved from 93 bps to 79 bps to 63 bps this quarter, driven by updated underwriting models and enhanced collection efforts across unsecured segments.
• Unsecured retail improving: Delinquencies in personal loans, credit cards, and microfinance are all trending better, with improved flow rates and collection efficiencies. Analytics, machine learning models, and alternate data are being leveraged to increase recovery.
• Retail CV remains the watchpoint: Stress continues in the retail commercial vehicle segment; underwriting has been tightened and disbursements reduced over the last few quarters. The portfolio built recently is showing better early delinquency trends, and management is hopeful it will plateau during Q4.
• Standard Chartered portfolio rundown: The acquired book is performing better than expected, with the residual portion now less than INR 1,500 crores, about 20% of the original. It is expected to run down over the next two quarters.
• Slippages masked by upgrades: Fresh slippages of INR 257 cr were upgraded within the quarter, reducing net slippage by approximately INR 100 cr QoQ. While unsecured businesses improved, retail CV and some rural-related advances pushed slippages up during the quarter.
• Credit cost steady state: As the unsecured mix increases, credit costs will settle higher than the historical 0.4–0.45% range, though no specific steady-state number was given.

Deposit Franchise & Margin Dynamics

• Cost of funds declining steadily: The trajectory moved from 5.01% in Q1 to 4.70% in Q2 to 4.54% in Q3, driven by low-cost deposit growth and repricing of maturing term deposits. The average maturity of term deposits is 9–12 months, and repricing is expected to complete during Q1 of next year.
• Current account growth was deliberate, not accidental: Average current account balances grew 14% YoY, driven by both wholesale flows from financial segment customers and granular consumer banking acquisition. Management attributed this to focused effort on affluent customers, persona-based branch catchment areas, and automation of payment flows.

Ashok Vaswani: "Trust me, it hasn't happened by chance. It has been a lot of effort and a lot of focus of the sales teams."

• Savings account strategy shifting granular: The bank is consciously running down SA MIBOR-linked bulky savings accounts and building fixed-rate SA with a retail focus, including the 811 proposition targeting small-ticket, granular, core India participation.
• NIM held at 4.54% despite rate headwinds: The floating rate yield was impacted by the 50 bps cut in June, partially offset by the CRR rate cut and deposit repricing. IPO-related short-term funds deployed in lower-yielding treasury assets mathematically reduced NIM; excluding this effect, NIM improved to 4.58%, up 4 bps QoQ.
• Q4 NIM outlook: The 0.25% rate cut will impact Q4 floating rate advances, but deposit repricing continues, the CRR cut gets a full quarter benefit, and February's typical day-count aberration provides a kicker. Assuming no further rate cuts in February, management expects a moderate increase in Q4 NIM, with a more stable picture from Q1.
• Liquidity tightening watch: Term deposit rates quoted by peer banks have inched up in the first 10 days of January, and Q4 typically sees liquidity tighten for corporates and banks. RBI measures may ease this but the outcome is uncertain.

Loan Growth & Segment Performance

• Advances growth aligned with philosophy: Net advances grew 16% YoY, consistent with the stated philosophy of 1.5x to 2x nominal GDP growth, with approximately 4% growth per quarter for the last three quarters of FY26.
• Unsecured retail growing gradually: The bank continues to grow unsecured retail loans in absolute terms first, gradually and responsibly, as previously indicated. Organic personal loan disbursements are strong, led by the salaried customer segment and supported by wider digital lending journeys.
• Mortgages as anchor product: The home loan market is price-sensitive; the strategic focus is on deepening customer relationships and positioning home loans as the anchor product for the affluent segment. Loan against property, serving MSMEs, shows strong momentum with disciplined underwriting.
• Business banking momentum: Secured business banking recorded strong growth of 21% YoY with high utilization levels, particularly during the festive period, driven by sustained working capital demand following GST changes. Unsecured business loan growth remains steady.
• Wholesale banking granular: Assets along with credit substitutes grew 17% YoY, with emphasis on granular growth through SME and mid-market verticals. Adjusting for migration, SME advances grew 26% YoY. Pricing remains a challenge in large corporate space, especially in long-term loans and project finance.
• Agri-finance pivot working: The agri-SME value chain book, built around agri-clusters over the last couple of years, has been inching up over the last three quarters. This is not a KCC book but focused on agri-traders, agri-processors, and primary/secondary processors.
• CV and CE divergence: Commercial vehicle industry sales grew 22% YoY, and the bank maintains its market position, though stress continues in the retail CV segment. Construction equipment industry sales declined 14% YoY, impacted by slower infrastructure activity and tight state government cash flows.
• Microfinance stabilizing: The industry started degrowing QoQ from Q2 of last financial year. The bank's retail microcredit book was flat QoQ as scheduled repayments offset current disbursements. Disbursements are expected to gradually improve from this quarter.

Fee Income & Subsidiaries

• Core fee income showing green shoots: Fee income grew 6% QoQ, contributed by forex, debt capital markets, and distribution income. Credit card fee growth remained muted. Management characterized this as the beginning of a trend rather than immediate results.
• Subsidiaries contributing 30% of consolidated profits: Strong performance with 11% YoY and 19% sequential growth, driven by the breadth of the conglomerate model. Capital market subsidiaries bounced back with PAT up 31% sequentially after a tepid H1.
• Kotak Securities gaining share: Market share increased to 13.5% from 11.5% YoY, with MTF market share at approximately 14%.
• Asset management momentum: Kotak AMC and Trustee grew 31% YoY and 22% QoQ; domestic MF AUM was up 20% YoY to INR 5,86,610 cr.
• Life insurance APE growth: APE grew 18.7% YoY, with retail sum assured up 75% due to protection focus and GST relief. AUM crossed INR 1 lakh cr. Profit was flat YoY due to GST and one-time labour code impact.
• Fee-to-loan growth gap acknowledged but not quantified: When asked why core fee income growth lags loan growth despite the conglomerate strategy, management pointed to the 6% QoQ growth as green shoots and said to look holistically at referrals beyond the fee line, but did not provide a timeline for alignment.

Operating Costs & Investments

• One-offs inflated the cost line: Q3 operating expenses included INR 96 cr in new labour code provisions at the bank level, marketing spend during the festive period, seasonal increase in tractor finance disbursement brokerage, and increased 811 acquisition costs.
• Underlying payroll costs flat: Actual payroll costs were flat QoQ. A pension liability benefit from interest rate movement reversed out and normalized during the quarter, and share-based incentive provisions increased due to share price movement.
• Cost-to-assets trending down: The ratio has moved from approximately 3% toward the 2.7–2.5% range, and management expects the trend to continue, with a target to maintain it in the 2.5–2.6% range.

Devang Gheewalla: "I think we would like to obviously maintain cost-to-asset ratio in the range of 2.5-2.6."

• Technology enabling cost rationalization: Automation and digitization have been accelerated across the customer lifecycle and channels, allowing balance sheet growth without corresponding headcount growth. Fixed costs, which are approximately 60–65% of total cost, were flat Q3 versus Q2.
• Good costs versus bad costs: Management wants costs to go up for customer acquisition, offset by automation and digitization efficiencies. No guidance was given on cost-to-income ratio.

Strategic Initiatives & Product Launches

• Credit card portfolio revamped: The bank launched a full range of new products: Solitaire for the top end, Air+ and Air as cash mile products for the mass affluent, and a cashback product. The Solitaire card is doing very well post-launch, with spend proving accretive.

Ashok Vaswani: "We completely revamped our credit card proposition. We have launched a whole range of new products, right from Solitaire for the top end to Air+ and Air, which is a cash mile product for the mass affluent and then a cashback product."

• Kotak Solitaire proposition gaining traction: Launched in Q1, designed for quality acquisition and deeper relationships, it has observed an uplift in new-to-affluent customers with increased relationship value driven by deposits and investments.
• 811 Super Savings account launched: The flagship digital banking proposition now offers 5% cash back on debit card spends, designed for core India customers. The 811 card strategy has been refined using advanced risk models and capped exposure after earlier experiments did not entirely work out.
• Wholesale technology build-out: A dedicated escrow platform was launched, API capabilities were enhanced, and the Fyn corporate portal now automates working capital loan disbursement, dealer financing, and servicing. The EwayGo digital platform for supply chain finance is witnessing a robust pipeline.
• IIT partnership for SME customers: The bank partnered with IIT to launch programs enhancing future readiness and AI adoption among SME customers.
• IDBI deal evaluation framework: Management evaluates every transaction against three criteria: strategic addition, valuation and value-accretion, and integration cost including management bandwidth and distraction. The current transformation path remains the priority.

Ashok Vaswani: "We look at every single transaction that comes up in the marketplace, and we essentially have 3 criterias that we look at... even if it meets strategically or if it meets valuation, then we always compare what does it really mean in terms of integration? How much management bandwidth is it going to be? How much of that will be a distraction?"

Guidance & Commitments

Key Metrics