Kotak Mahindra Bank’s 1:5 stock split has come into effect from January 14, 2026. Each equity share of face value Rs 5 has been subdivided into five shares of face value Rs 1. While the move improves affordability and enhances market liquidity, ICICI Securities is clear that the split has no impact on intrinsic value or fundamentals. Instead, it serves as a psychological and accessibility lever, particularly for retail participation, at a time when the bank is preparing for a margin and RoA recovery phase.

Business Momentum: Advances Outpace Deposits

Kotak reported healthy provisional business numbers for Q3FY26. Net advances (end-of-period) rose 16% year-on-year and 3.8% quarter-on-quarter to Rs 4,80,229 crore. Deposits grew 14.6% YoY and 2.6% QoQ to Rs 5,42,638 crore.

The key nuance lies in the funding mix. CASA balances stood at Rs 2,24,199 crore, up 11.9% YoY, but sequential growth was muted at 0.2% QoQ. Advances growing faster than deposits indicate short-term pressure on the funding profile, but ICICI Securities expects margin improvement as deposit repricing benefits begin to flow through in Q3FY26 and beyond.

Margins: Repricing Cycle Turns Supportive

Net interest margins (NIMs) had compressed in recent quarters due to elevated funding costs and competitive deposit pricing. However, the brokerage expects margin recovery through H2FY26, supported by:

Repricing of high-cost term deposits

Stabilization in cost of funds

Better yield management across advances

FY27E NIMs are projected to improve to 4.6% from an estimated 4.4% in FY26E, creating a cushion for profitability even if loan growth moderates marginally.

Asset Quality: Stress Contained, Credit Costs Easing

Kotak’s asset quality remains among the strongest in the private banking space. Gross NPAs and Net NPAs stood at 1.39% and 0.32%, respectively, with a provision coverage ratio of 77%.

Credit cost eased to 79 basis points in Q2FY26 from 93 bps in the previous quarter, driven by normalization in microfinance and credit card portfolios. While stress persists in select retail CV pockets, management has tightened underwriting standards and calibrated disbursements. Wholesale and SME books continue to perform steadily.

ICICI Securities expects further moderation in credit costs during H2FY26 as collection efficiencies improve and microfinance stress subsides.

Profitability Metrics: RoA Set for Gradual Normalization

Kotak has historically delivered superior return ratios, with RoA consistently above 2%. After peaking at 3.1% in FY25, RoA is expected to moderate to 1.9% in FY26E, before recovering to 2.0% in FY27E.

The temporary dip reflects elevated provisions and margin pressure, not structural weakness. As credit costs normalize and margins stabilize, return on equity is projected to improve from 11.2% in FY26E to 12.4% in FY27E.

Financial Trajectory: Earnings Reset Before Acceleration

Below is a snapshot of Kotak Mahindra Bank’s key financial trends as highlighted by ICICI Securities:

The sharp PAT decline in FY26E is largely optical, reflecting normalization after an exceptional FY25. Earnings growth is expected to re-accelerate in FY27E with a projected 25% year-on-year rise in net profit.

Valuation: Conservative Core, Optionality in Subsidiaries

Factoring in the stock split, ICICI Securities values the standalone bank at 2.6x FY27E adjusted book value, unchanged from earlier assumptions. In addition, the brokerage assigns Rs 127 per share to Kotak’s subsidiaries.

This sums up to a revised target price of Rs 514. At current levels, the stock trades at 2.9x FY27E ABV, which ICICI Securities views as reasonable given Kotak’s balance-sheet strength, capital adequacy, and long-term franchise value.

Key Risks to the Investment Thesis

No banking story is without its caveats. The brokerage flags the following risks:

• Asset quality stress in retail CV and microfinance segments
• Slower-than-expected deposit repricing, pressuring margins

A sharper-than-anticipated economic slowdown could also delay credit cost normalization and RoA recovery.

Investor Takeaway: Buy for Quality and Patience

Kotak Mahindra Bank’s stock split may grab headlines, but the real story lies beneath the surface. ICICI Securities believes the bank is navigating a transitory phase where margins and returns are resetting before resuming an upward trajectory. With asset quality resilience, improving credit costs, and valuation comfort, the brokerage maintains its BUY call with a target of Rs 514.