Kotak Mahindra Bank Q2 Results FY26: Profit Falls 3%, Provisions Surge But Asset Quality Holds Firm

Kotak Mahindra Bank Limited (KMBL), one of India’s leading private sector banks, announced its Q2 FY26 results revealing a modest decline in profit due to higher provisions and moderated growth in its core income.

The standalone net profit stood at ₹3,253 crore, marking a 3% year-on-year (YoY) decline, while the consolidated profit fell 11% YoY to ₹4,468 crore, according to filings shared by the bank.

Despite the drop, analysts and brokerages remain cautiously optimistic due to the bank’s healthy loan growth, improving margins, and robust asset quality metrics.

💰 Key Financial Highlights (Q2 FY26)

MetricQ2 FY26Q2 FY25ChangeStandalone Net Profit₹3,253 crore₹3,356 crore▼ 3%Consolidated Net Profit₹4,468 crore₹5,021 crore▼ 11%Net Interest Income (NII)₹7,311 crore₹7,033 crore▲ 4%Net Interest Margin (NIM)5.2%5.1%▲ 10 bpsProvisions (Total)₹555 crore₹389 crore▲ 43%Gross NPA1.38%1.39%▼ 1 bpsNet NPA0.34%0.37%▼ 3 bpsAdvances (Loans)₹3.62 lakh crore₹3.23 lakh crore▲ 12%Deposits₹4.09 lakh crore₹3.60 lakh crore▲ 13%

(Source: Kotak Mahindra Bank Investor Presentation, Moneycontrol, Mint, Business Standard)

📉 What Caused the Dip in Profit?

1. Surge in Provisions

The primary reason behind the profit decline was the 43% jump in provisions, primarily due to fresh slippages in the corporate and SME segments.
Analysts at Upstox and Business Standard note that credit cost has risen temporarily, but the bank expects gradual moderation in the second half (H2 FY26).

2. Slower Core Income Growth

According to Reuters and Press Trust of India, Kotak’s core income growth slowed compared to peers, affecting bottom-line performance despite resilient lending activity.

3. Limited Room for Re-Rating

CNBC-TV18 highlighted that while the bank’s fundamentals remain solid, valuation re-rating potential is limited, prompting some brokerages to downgrade the stock on near-term performance grounds.

📈 Positives from the Quarter

Despite the subdued profit, several key positives stood out:

• Loan Book & Deposit Growth:
  Loans grew 12% YoY, and deposits rose 13% — showcasing healthy traction across retail, SME, and corporate segments.

• Improved Asset Quality:
  The Gross NPA ratio declined slightly to 1.38%, while the Net NPA improved to 0.34%, reflecting prudent risk management and strong recoveries.

• Stable Margins:
  The NIM expanded marginally to 5.2%, higher than several peers like Axis and ICICI Bank.

• Digital Banking Growth:
  Kotak’s digital platforms continued to drive new customer acquisitions and deposits, contributing significantly to CASA and low-cost funding.

💬 Management Commentary

Kotak Mahindra Bank’s management emphasized that the balance sheet remains strong, and credit costs are expected to normalize in the coming quarters.

“We continue to maintain robust capital adequacy and liquidity buffers. While higher provisioning impacted this quarter’s profit, we foresee stability in asset quality and margin recovery in H2,” the management said in its post-results statement.

The bank remains non-committal on acquiring IDBI Bank, citing ongoing evaluation of market conditions.

📊 Analyst & Brokerage Reactions

BrokerageRatingTarget PriceCommentaryPrabhudas LilladherBuy₹2,480Expects loan growth and NIM expansion to sustain long-term value.Nirmal BangBuy₹2,350Notes robust loan growth and better-than-expected margin performance.Emkay GlobalReduce₹2,050Cautious on short-term profitability due to higher provisions.Nuvama InstitutionalHold₹2,200Sees limited re-rating potential given valuations.Financial ExpressPositive Bias—Brokerages see up to 21% upside from current levels.

Overall, the consensus remains cautiously bullish, with many analysts seeing Kotak Mahindra Bank as a long-term portfolio stock given its stable fundamentals and strong digital ecosystem.

📊 Stock Market Reaction

Following the announcement of Q2 results:

• Kotak Mahindra Bank shares fell nearly 2–3% on the NSE to around ₹1,780, reacting to weaker profit and higher provisioning.

• The stock has underperformed the Nifty Bank index in recent sessions.

• However, several experts, including those cited by Moneycontrol and News18, maintain that this dip could be a buying opportunity for long-term investors.

🔮 Outlook: What Lies Ahead

• Credit Cost Normalization: Expected to ease in H2 FY26, improving profitability.

• Loan Growth Momentum: Retail and SME lending likely to remain strong.

• Digital Transformation: Kotak’s digital-first strategy will continue enhancing efficiency and customer acquisition.

• Valuation Comfort: Despite the correction, the stock trades at reasonable valuation multiples compared to peers.

🧾 Conclusion

Kotak Mahindra Bank’s Q2 FY26 results reflect a temporary blip in profit due to elevated provisions, but the underlying business remains robust.
With improving asset quality, steady NIMs, and a digitally driven loan expansion strategy, Kotak stands positioned for recovery and steady long-term growth.

While short-term sentiment remains cautious, analysts continue to view Kotak as a fundamentally strong franchise with scope for gradual re-rating once profitability stabilizes.

🔑 Summary at a Glance

• Net Profit: ₹3,253 crore (▼3%)

• NII: ₹7,311 crore (▲4%)

• Provisions: ₹555 crore (▲43%)

• NIM: 5.2%

• Asset Quality: GNPA 1.38%, NNPA 0.34%

• Loan Growth: 12% YoY

• Stock Reaction: ▼2–3% post-results

• Analyst View: Cautiously positive; upside potential of up to 21%