Explained: Why Kotak Mahindra Bank shares plunged 7% after Q2 results

Kotak Mahindra Bank shares dropped significantly on Monday, falling by over7% to hit a low of Rs 1,735 in early trade, after the private lender reported mixed Q2 FY25 earnings.
At 1:02 pm, shares of the bank were down 5.18% to Rs 1,773 on the Bombay Stock Exchange (BSE).
The market responded negatively to the results, as concerns about the bank’s asset quality and shrinking net interest margin (NIM) weighed on investor sentiment.
Nuvama Institutional Equities reiterated its ‘reduce’ rating on Kotak Mahindra Bank, setting a lower target price of Rs 1,615. The firm highlighted “upside risks” despite some positive aspects in the bank’s Q2 performance, such as an 18% rise in customer assets and reduced operational expenses.
However, the bank’s NIM fell by 11 basis points quarter-on-quarter (QoQ), and there was a sharp deterioration in asset quality.
The decline in NIM is partly attributed to a lower share of unsecured loans following a ban imposed by the Reserve Bank of India (RBI) earlier this year, which prevented Kotak from onboarding new customers on its digital banking platforms.
The regulatory action, coupled with a 38% increase in slippages QoQ, particularly in credit cards, added to the pressure.
Nuvama noted that “credit cost rose 16 per cent QoQ, 11 per cent higher than consensus,” while the core pre-provision operating profit (PPOP) fell 3% QoQ. Meanwhile, Kotak’s profit after tax (PAT) grew 5% year-on-year (YoY), but its microfinance institution (MFI) segment saw a steep 30% QoQ decline in PAT, and an 85% YoY drop.
Nuvama also pointed out the increase in gross non-performing assets (GNPA), which grew 10% QoQ, alongside a specific credit cost increase to Rs 670 crore, exceeding market expectations.
The brokerage highlighted Kotak’s rising stress in credit card and MFI portfolios but noted that recent sanctions in these segments are performing well. “Slippage rose 38 per cent QoQ… 35 per cent of slippage was from credit cards of old vintage,” it stated.
Despite these concerns, Kotak Mahindra Bank management remains optimistic about NIM recovery, driven by the proposed acquisition of a Rs 4,100 crore personal loan portfolio and a minor reduction in the cost of deposits (CoD). N
“We believe the loan mix shall be a key determinant of NIM more than anything else,” said Nuvama.
Looking ahead, management expects an improvement in slippages, particularly in secured and rural loans, during the second half of FY25, although industry-wide stress in credit cards and MFI is not expected to ease until FY26. Kotak’s CEO has ambitious plans for the bank, aiming to make it the third-largest private bank in India within five years. Reports have also surfaced that Kotak Mahindra Bank could be a potential bidder for IDBI Bank.
In terms of guidance, Nuvama noted that “credit cost (annualised) during the quarter increased to 65bp,” largely driven by higher slippages in unsecured loans. However, Kotak’s management believes that credit costs will stabilize over the next two to three quarters, depending on broader market conditions.
The bank has also made “substantial progress” in addressing all points raised by the RBI and is on track with the regulator’s timeline.