Kotak Mahindra Bank shares plummet following disappointing Q1 results

Kotak Mahindra Bank shares plummet following disappointing Q1 results

Indian banks have been grappling with rising bad loans in the unsecured segment

Kotak Mahindra Bank experienced its worst trading day (28 July) in over a year, as the quarterly earnings target sparked concerns about worsening asset quality. The stock fell 6.4 percent to Rs.1,988.60, the lowest since mid-March. It flopped on India's benchmark Nifty 50 index, which slipped 0.1 percent.

Eight analysts slashed their price targets on the ‘buy’-rated stock after the private lender bank missed profit estimates on higher provisions for potential bad loans.

At Ambit Corporate Finance, analysts felt that the asset quality pain would continue for Kotak and stress in the retail commercial vehicles segment could rise further. They added, "Considering such volatility and limited availability of buffer provisions, we expect fiscal 2026 credit costs to remain elevated.”

Kotak has been struggling with rising bad loans in the unsecured loan segment. Its gross non-performing assets ratio worsened to 1.48 percent of total loans at end of June, from 1.39 percent a year earlier. The net interest margin, a key gauge of profitability, dropped to 4.65 percent from 5.02 percent, reflecting the impact of the interest rate cuts set by the Reserve Bank of India (RBI).

Meanwhile, analysts at Emkay Global expect the margin to contract further in the second quarter, with a gradual recovery expected from the third quarter. When interest rates are lowered, banks typically pass on the benefits to borrowers early, followed by lower deposit rates, which can temporarily squeeze margins, they said.

The session's losses have trimmed Kotak's year-to-date gains to 11 percent, compared to a 10 percent climb in the private banks index.

Earlier this month, Axis Bank also reported disappointing results, which fanned concerns of declining asset quality.