Kotak Mahindra Bank has drawn fresh attention following a detailed 4QFY25 update from Motilal Oswal, which reaffirmed its BUY rating with a 14% upside potential, setting the target at Rs 2,500. Despite some earnings pressure due to prudential provisions, the bank demonstrated resilience with robust asset quality, rising CASA ratios, and improving Net Interest Margins (NIM). The management remains optimistic about growth rebounding to 1.5–2x of nominal GDP, underpinned by expansion in consumer and unsecured lending segments. Analysts forecast an RoE of 13.3% and RoA of 2.1% by FY27, highlighting Kotak’s steady transition into a more customer-centric and granular retail-focused franchise.

Strong Operating Metrics Amid Prudential Provisioning

The bank’s 4QFY25 standalone PAT came in at Rs 35.5 billion, missing estimates by 6%, largely due to a Rs 560 million provisioning related to AIF investments. Nevertheless, consolidated PAT rose 5% sequentially to Rs 49 billion, although it marked an 8% YoY decline.

Net Interest Income (NII) grew 5.4% YoY to Rs 72.8 billion, while NIM surprised positively, improving 4 basis points sequentially to 4.97%, driven in part by a favorable calendar base. Fee-based other income rose sharply by 21.3% QoQ to Rs 31.8 billion.

Asset Quality Improves With Reduced Slippages

Fresh slippages declined 10.2% QoQ to Rs 14.9 billion, which contributed to a reduction in the Gross NPA ratio by 8bps QoQ to 1.42%. Net NPA also eased to 0.31%. Notably, the Provision Coverage Ratio (PCR) was raised by 492bps to 78.1%, showcasing the bank’s conservative stance on credit risk.

MFI segment stress remains a concern, but secured loan segments and personal lending have shown recovery, with slippage moderation expected to continue in H2FY26.

Growth in Advances Remains Subdued But Broad-Based

Loan book expanded 13.5% YoY (3.2% QoQ) to Rs 4.27 trillion, with a notable uptick in personal loans (PL), business loans (BL), and consumer segments post embargo removal. The unsecured loan share dropped from 12.7% to 10.5% but is expected to revert to mid-teens as new credit card products roll out.

Deposit growth accelerated to 11.2% YoY, reaching Rs 4.99 trillion, led by a sharp 10.6% QoQ jump in current account balances. CASA ratio improved by 70bps QoQ to 43%.

Subsidiary Performance: AMC and Prime Drive Consolidated Strength

Kotak Prime delivered a 33% YoY PAT increase, while Kotak AMC saw its net profit surge by 143% YoY to Rs 3.6 billion, driven by robust asset growth and cost efficiency.

Conversely, Kotak Life posted a 33% YoY PAT decline, with profit at Rs 0.7 billion. Kotak Securities also witnessed a 7.9% YoY decline in PAT to Rs 3.5 billion. Nevertheless, the overall subsidiary contribution remains solid with multiple verticals supporting group-level profitability.

Technology and Platform Innovation Fuel Deposit Granularity

Kotak continues its pivot from a product-driven to a customer-centric model. Key innovations include:

“Solitaire”: A premium product for affluent clients bundling banking and investment services.

811 Platform: Continues to attract granular, low-ticket deposits.

ActivMoney: Grew 18% YoY, reinforcing savings behavior across mass retail.

These efforts have translated into steady QoQ growth in regular savings accounts and increasing traction in digitally onboarded credit card customers.

Financial Snapshot and Key Ratios

Here’s a brief financial performance summary:

Valuation: BUY Maintained With Rs 2,500 Target

Motilal Oswal values the bank at 2.5x FY27E Book Value, incorporating a Sum of the Parts (SoTP) valuation of Rs 770 per share for subsidiaries. Key contributors include Kotak AMC, Kotak Securities, and Kotak Prime.

The bank’s standalone valuation is pegged at Rs 1,725 per share, with the total target price fixed at Rs 2,500. This implies a 14% upside from current levels.

Strategic Outlook and Takeaways for Investors

Unsecured Lending Pivot: With the embargo lifted, Kotak is poised to re-enter growth mode in credit cards and personal loans—sectors with higher yields.

Granular Deposit Strategy: CASA ratios and low-cost deposits remain at the heart of margin preservation.

Tech-led Differentiation: High digital adoption through 811 and other platforms continues to set Kotak apart.

Prudent Capital Management: With CAR at 22.2% and CET-1 at 21.1%, the bank is well-capitalized for future growth or acquisition opportunities.

Long Term Views

Kotak Mahindra Bank may have posted a muted earnings quarter on paper, but beneath the surface lies a franchise meticulously reinforcing its structural integrity. Backed by robust capital ratios, improving fee income, and a renewed thrust toward digital and unsecured lending, the bank stands well-positioned to ride India’s GDP growth curve.

Motilal Oswal’s reaffirmation of its BUY rating, with a target of Rs 2,500, reflects confidence in Kotak’s long-term franchise value. Investors with a 12–18-month horizon may find this a compelling entry point into a fundamentally strong, yet conservatively run, private sector lender.