Kotak Bank Q2 Net Profit Down 2.7% YoY; NII Rises 4% to Rs 7,311 Crore

Kotak Bank Q2FY26 Results: Profit Dips While Advance Growth Picks Up

Mumbai – Private-sector lender Kotak Mahindra Bank on October 25 reported its standalone financial results for the second quarter of fiscal 2026 (Q2FY26), showing a mixed performance. The bank’s net profit declined by 2.7 per cent year-on-year to ₹3,253 crore, down from ₹3,344 crore in the same period a year earlier.

At the same time, the bank recorded a respectable uptick in its net interest income (NII), which rose 4 percent to ₹7,311 crore, compared to ₹7,020 crore in Q2FY25. The net interest margin (NIM) for the quarter stood at 4.54 per cent, and the cost of funds was measured at 4.70 per cent.

Strong Growth in Advances, Deposits – Margin Pressure Looms

While profitability dipped modestly, Kotak’s core lending business exhibited solid momentum. The bank’s net advances grew 16 per cent YoY, reaching ₹4,62,688 crore as of September 30, 2025, up from ₹3,99,522 crore a year earlier. At the same time, deposits, though not highlighted in the headline, also showed meaningful growth according to earlier disclosures.

Despite this growth, margin pressure remains a key risk. With the cost of funds at 4.70 per cent and NIM at 4.54 per cent, the bank appears to be navigating a challenging interest‐rate environment. Industry commentary suggests that headwinds from rate cuts in earlier months may be weighing on margin metrics.

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Asset Quality Improves, Coverage Remains Robust

On the asset quality front, the bank reported improvements: gross non-performing assets (GNPA) were down to 1.39 per cent, and net non-performing assets (NNPA) were at 0.32 per cent as on 30 September 2025. For comparison, in the year-ago period GNPAs were 1.49 per cent and NNPAs 0.43 per cent. The bank’s provision coverage ratio stood at a healthy 77 per cent.

The improvement in both GNPA and NNPA reflects better credit performance and suggests that Kotak is keeping credit costs and slippages under reasonable control even as it grows its loan book.

Strategic Outlook: Balancing Growth & Margins

Kotak’s results highlight the bank’s ability to deliver growth in advances and maintain asset‐quality discipline, yet they also underscore the margin squeeze that private banks in India are facing amid competitive deposit pricing and a shifting rate cycle.

Analysts had pointed to margin pressure as a key watch area for the bank in Q2FY26. Some broker reports suggested that NIMs might reach their trough in this quarter owing to the full effect of a June rate cut by the Reserve Bank of India (RBI) being reflected. From next quarters, margins may stabilise or recover as repricing plays out.

In this context, Kotak’s growth in advances of 16 per cent is notable; it demonstrates the bank’s ability to scale its credit book even while navigating a tougher margin environment. Simultaneously, the improvement in asset quality should provide comfort to investors and stakeholders.

What Investors & Stakeholders Should Watch

– Margin trajectory: With NIM at 4.54 per cent this quarter, the key will be whether the bank can stabilise or expand margins in H2FY26.
– Deposit costs: As advances grow, deposit mobilisation and cost control will be critical to support margins.
– Unsecured book risks: Earlier commentary from Kotak flagged stress in certain unsecured segments; monitoring slippages and diverging trends in unsecured/secured lending remains important.
– Credit-cost outlook: Though GNPAs and NNPAs improved, any uptick in slippages or provisioning needs may weigh on future profitability.
– Growth mix and returns: As the bank grows its advances, whether it maintains return on assets (ROA) and return on equity (ROE) will matter for value creation.

Conclusion

Kotak Mahindra Bank’s Q2FY26 performance delivers a story of growth and resilience amid margin headwinds. The 16 per cent advance growth and improvement in asset quality speak to the bank’s execution strength. However, the modest decline in net profit and pressures on margin metrics underscore the challenges that banks face in the current rate environment. For investors and market watchers, the coming quarters will be telling: whether Kotak can translate growth into higher profitability through margin recovery and cost discipline will define its trajectory in the remainder of FY26.

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