Kotak Mahindra Bank Ltd (KOTAKBANK) Q2FY27 Concall Transcript - Sep-2026 Qtr
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Moderator: Ladies and gentlemen, good day, and welcome to the Kotak Mahindra Bank Limited Q2 FY27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashok Vaswani, Managing Director and CEO of Kotak Mahindra Bank Limited. Thank you, and over to you, sir.
Ashok Vaswani (Kotak Mahindra Bank Limited): Thank you, Darwin. Good afternoon, everyone, and thank you for joining us this afternoon. I will, as usual, begin with some opening remarks before handing over to Devang, who will take you through the financial performance. Anup and Paritosh will cover the retail and institutional businesses respect respectively, and Jaideep will provide an update on our subsidiary performance. For the quarter, the group delivered 5,645 crores in profit after tax, a growth of 26% year on year. Let me first talk about the bank and then move to the subsidiaries. The bank delivered profit after tax of 4,212 crores, up 29% year on year. This quarter's performance demonstrates that our strategy is translating into results. We are seeing encouraging traction across our focus customer segments, independent product businesses, while our investments in technology are clearly paying off. In terms of balance sheet, our total average deposits grew 19% year on year. Within this, our CA and fixed rate SA books grew at 17% year on year and 14% year on year respectively. Excluding FCNR deposits on an end of period basis, deposits grew by 13% year on year and CASA would have stood at 41.8% up from 40.3% sequentially. Let me spend a couple of moments on the FCNR(B) program. We believe that the FCNR(B) program is a one-off opportunity. We have raised $5.78 billion or ₹55,000 crores through the program, significantly ahead of
Ashok Vaswani (Kotak Mahindra Bank Limited): our deposit market share would ordinarily imply. This amounts to as much as 9.7% of the June deposit base. These inflows have supported our objective of increasing the tenure and stability of our deposit franchise by adding longer duration and fixed rate funding to the balance sheet. During the quarter we used part of the proceeds to fund the acquisition of Kotak Mahindra's investment loan portfolio, run down relatively high-cost deposits, and reduce dependency on IBPC borrowings. Strategically, we are managing the timing of the deployment of these deposits into customer assets to build the franchise and take advantage of the increasing rate cycle. We expect to deploy the remaining funds over the next few quarters. Net advances grew 25% year-on-year, which includes 16,000 crores of loans against FCNRB deposits, and a transferred loan portfolio of around nine 9,600 crore crores from Kotak Mahindra Investments. Excluding both of these, our core net advances grew 19% year-on-year, in line with our philosophy of growing our advances at 1.5 to 2 times nominal GDP growth. In the unsecured segment, as we have been saying, we continued to grow in absolute terms with sub- with sequential growth now visible in personal loans, business loans, credit cards and retail microcredit, i.e. across the board. Further, the benefits of our strong underwriting disciplines and enhanced collection capabilities are continuing to come through. This is reflected in credit costs, which improved to 35 basis points in Q2 FY '27 from 46 basis points in Q1 FY '27. On cost, the underlying growth remained broadly flat, sequentially adjusting for the FCNRB impact. We continued to see the benefits of our focus on cost discipline with cost to asset declining steadily over the last six quarters to 2.4% in Q2. Let me now turn to our subsidiaries. Quarter-end volatility in equity and bond markets impacted investment income across subsidiaries. However, core operating performance remained healthy with Investment Banking delivering a very strong quarter, driven by a rebound in primary market activity and a robust pipeline, maintaining its prime leadership position. The strong domestic inflows supported the asset management and alternate asset businesses. With this, the subsidiaries contributed 26% of consolidated profit after tax. Reflecting the strength of the overall franchise, consolidated book value per share increased by 6% 16% year-on-year. To conclude, we're encouraged by the progress across the customer franchise. Advances have grown in line with our stated philosophy, while our liability franchise continues to strengthen. The One Kotak approach has helped us deepen customer relationships, credit costs have been brought under control, and technology is driving greater productivity. We are confident in our ability to deliver responsible and profitable growth. With that, let me hand it over to Devang to take you through the financials in greater detail.
Devang (Kotak Mahindra Bank Limited): Thank you, Ashok, and good afternoon, everyone. Let me first take you through the key highlights of bank standalone performance. Bank's balance sheet grew 25% YoY and the total balance sheet size at 30th September is now almost 9 lakh crores. Profit before tax for Q2 was 5,579 crore, which grew by 29% YoY and 2% on a QoQ driven strongly by the growth in NII of 16% YoY, non-interest income grew 23% YoY, sustained improvement in cost-to-income ratio from 2.67 in Q2 FY '26 to 2.4 in Q2 FY '27, continued improvement in credit cost from 0.79 in Q2 '26 to 0.35 in Q2 '27. The operating profit also grew by 21%
Devang (Kotak Mahindra Bank Limited): 4% on a Q-o-Q basis. Our advances grew 25% Y-o-Y and 13% Q-o-Q basis. Excluding loans provided by international branches of the bank against FCNR (B) deposits, and the loan portfolio acquired from Kotak Mahindra Investments Limited, advances grew by 19% Y-o-Y and 8% on a Q-o-Q basis. Advances growth in Q2 FY 2027 was across all business segments, primarily driven by SME, which was supported by the ECLGS scheme, corporate banking, and retail banking. Our unsecured retail advances share is 8.1% and in absolute terms the portfolio grew by 1,730 crores as against 707 crore in Q1 of FY 2027. The growth mainly came in MFI, credit card, and personal loan and business loan segments. This quarter also saw good traction in our commercial vehicle and construction equipment business. During the quarter there was a net reduction in the IBPC borrowing by 9,800 crore, utilizing the proceeds from the FCNR (B) mobilization. Coming to the deposits, our total deposits grew 23% Y-o-Y and 14% Q-o-Q on a end of period basis, while the average deposit grew 19% Y-o-Y and 8% on a quarter-on-quarter basis. Deposit performance was mainly driven by strong growth in granular retail current account balances and term deposits. Within deposits, current account grew 17% Y-o-Y on average basis, and fixed rate SA grew 14% Y-o-Y on average basis. Excluding FCNR (B) deposits, regular term deposits grew by 15% Y-o-Y on average basis. Further, we repaid high-cost certificate of deposits during the quarter. CASA ratio excluding FCNR (B) deposit was 41.8% as against 40.3% on June 30th. Friends, while the FCNR program is a one-off opportunity, let me highlight the financial implication on the Q2 results. As Ashok mentioned, we mobilized 55,344 crore in deposits, which is almost 9.7% of our June di- total deposit base, and we gave loans of 16,100 crore, which is about 3.1% of our net advances at June 30th against the FCNR deposits. This deposits were deployed towards funding acquisition of KMIL loan, which is about 8,900 crores, and net repayment of IBPC amounting to 9,800 crore. Strategically, we will use this deposit to fund customer asset growth over next few quarters taking advantage of the higher interest rate cycle. Net interest margin for the quarter was 4.31%, a drop of 22 bps on sequential basis. FCNR (B) deposits and related advances contributed 15 bps to this drop. The balance drop was due to quarter-specific day count variation, which is consistent with the pattern observed in prior periods, and repayment of IBPC. The underlying core margin broadly remained same as quarter one, which is also reflected in the NII growth of 16%. Going forward, NIM will reflect full quarter impact of FCNR (B) mobilization, which will be offsetted by progressive deployment of FCNR (B) deposits in customer assets and repo rate transmission on floating-rate advances. Cost of fund for Q2 FY 2027 was 4.52%, which included impact of increase in share of term deposit on account of FCNR (B) mobilization. Our cost of fund continues to remain one of the lowest among large peers. Non-interest income for quarter two grew 23% Y-o-Y, excluding processing fee fee on the advances against
Devang (Kotak Mahindra Bank Limited): FCNR(B) deposits. Non-interest income grew by 17% YoY. Growth in this non-interest income was mainly driven by higher effects gains, traction in debt capital market syndication fees and fees from higher disbursement across businesses. Q1 FY27 not-interest non-interest income included dividend income from subsidiaries of ₹570 crores. Our cost to asset for the quarter was at 2.4%, down from 2.66 in Q1 '27. The operating expenses grew by 14% YoY and 3% on a QoQ basis. Excluding one-time costs relating to borrowing by the bank's international branches, total operating expense grew by 11% YoY and flat on a QoQ basis. We continue to invest in our brand and technology. Cost-to-income was at 45.2%, a YoY reduction of 160 bps. We continue to see improvement across all asset quality parameters, with gross NPA declining to 1.04 from 1.18 in the previous quarter, net NPA improving to 0.24 compared to 0.27, and provision coverage ratio remaining above 78%. Credit cost for the quarter, 35 bps compared to 46 bps in quarter one, while slippage ratio declined to 0.85 from 1.03 sequential quarters. The unsecured portfolio continues to show improvement in credit cost and delinquencies in retail CV have stabilized. As of September 30th, the bank's net worth is at ₹1,45,984 crores, which includes ₹10,958 crore of MTM gain on select investments accounted through the AFS reserve, which has not been routed through the profit and loss account. RoE for the bank is 11.65% for the quarter. Adjusting for this non-cash AFS reserve, the RoE improves to 12.55%. Our capital adequacy of the bank is 21.9%, of which CET1 is 21.4%. Return on assets for Q2 is 1.92, with average balance sheet growth of about 26% and was higher by 4 bps on a YoY basis. This quarter's FCNR(B) mobilization has provided us significant liquidity, which will be deployed in customer assets over next few quarters, taking advantage of the increasing interest rate environment. The core performance of the bank continues to improve with balance sheet growth, volume-led non-interest income growth, sustained cost discipline, and continued improvement in credit cost. Moving to the consolidated business, that customer assets stood at ₹6,99,250 crores, a growth of about 21% on a YoY basis. The group investment AUM increased to ₹8,14,118 crores, an increase of 8% on a YoY basis. The consolidated net worth of the group is now ₹1,94,706 crores, with the book value per share increased to ₹196 with a 6-year CAGR of 16%. Consolidated PAT for the quarter is ₹5,645 crores, which grew 26% YoY and 3% on a quarter-on-quarter basis. Q2 FY27 consolidated PAT was impacted by market-led MTM volatility across the subsidiaries. However, underlying performance remains strong. Jaideep will take you through the performance of the key subsidiaries in detail. With that, I hand over to Anup to discuss the highlights of our retail businesses.
Anup (Kotak Mahindra Bank Limited): Thank you, Devang. Our retail strategy remain anchored on two focus segment, the affluent and private banking India and the core India. Private banking and core India affluent India continues to grow very nicely. Our Solitaire
Anup (Kotak Mahindra Bank Limited): proposition continues to deliver strong outcome. As of 30th September, the bank managed a combined relationship value of 13.6 lakh crore across 90,000 plus families. Kotak811, the cornerstone of core India strategy of ours, is now much wider, much bigger, scalable, digital platform which is driving customer acquisition through their digital strategy of 811 and is also being used as a platform for engagement and acquisition of customers at branches, our sales channels, and our corporate salary relationships. This differentiated proposition for mass affluent has strengthened our customer engagement, resulting a 34% YoY growth in savings balances, and this now contributes to 13.3% of total savings. Our deep conviction around core India strategy and our payments strategy has led to significant benefit for us in the changing MDR on UPI. As of 2026, our UPI issuer market share stood at 3.8%, ahead of our deposit market share. Further, 13.3% of Kotak's UPI remitter transactions by volumes are routed through our mobile applications, underscoring preference of our digital ecosystem. In every way, we are possibly only, one of the few banks, who have a very strong payment strategy. It is the success of this sec-- two segment that is reflected in the momentum of our liability franchise. Our CASA stood at, 40. 41.8, up from 40.3. In terms of the numbers, they've already Devang spoke about, I'm going to skip the FCNR since, Devang has already discussed about that. Moving to the asset side, mortgage lending comprising of home loan, loan against property, and affordable housing, we're building long-term relationship with our affluent and self-employed customers and also driving deposit mobilization through the relationship value. Our distribution, our better digital journeys, our mortgage portfolio grew at 14% and 4% QoQ. We also launched our hybrid home loan on a timely basis, and this has generated strong customer interest. However, at a overall base, our portfolio continues to remain mostly floating. Our gold loan book, while still relatively small, continues to grow strongly, aided by significant automation of process which we have now delivered. The unsecured portfolio, Devang spoke about it, between personal loan, business loan, credit cards, retail microcredit. We are seeing good growth, and credit cost have normalized. However, we continue to remain focused on our risk metric which is within our risk appetite. Personal loan business, business loan, grew 9% YoY, 4% QoQ. This is further strengthened by our offerings for personal loan and business loan of both term loans and overdraft products to our Solitaire and high net worth customers as well, in addition to mass affluent. Credit card business, which we earlier spoke about that we re-tracked the business in terms of right product at right customer as of September 2026, grew 8.9% YoY and 8.3% quarter-on-quarter, while portfolio grew 7% YoY and 4% quarter-on-quarter. The Solitaire credit card has seen strong acceptance, very high brand recall and demand for the customers who who bank with us, and our spends there is growing very nicely. Retail microcredit grew about 18% YoY, 5% QoQ supported by risk underwriting and the portfolio being covered under credit guarantee schemes. In tractor loans, we maintain our position as a large financier within the play, delivered 11% YoY and 3% QoQ, while we remain watchful of the potential El Nino related risk. This is a business we have built over last two decades and we have a strong domain understanding of this business, and are present across major geographies of India. This is a product, tractor, which is largely bought by the small and marginal farmers of India who are the backbone of our country's agricultural economy. Collection efficiencies on in tractors have improved significantly
Anup (Kotak Mahindra Bank Limited): While we have seen no visible impact on delinquency as on Q2 FY '24, we remain very watchful of the evolving weather condition. You know all of us know, the rainfall deficit for this monsoon season has been about 13%. With that, I will hand it over to Paritosh to take you through the next section.
Paritosh (Kotak Mahindra Bank Limited): Thank you Anup. I will now take you through the performance of the institutional businesses. Our institutional and SME proposition continues to drive growth while leveraging the group's diversified financial services platform. Across these businesses our focus is on deepening customer relationships, meeting customer needs holistically and increasing our share of wallet to improve return. On the asset side, growth was broad-based across sectors and customer segments in the Corporate Bank, with the loan book growing by 25% YoY and 15% quarter-on-quarter. Credit substitutes grew 44% YoY and 2% quarter-on-quarter. On a combined assets basis, that's Corporate Bank and credit substitutes, growth was 29% YoY and 11% quarter-on-quarter. Adjusting for the KMIL transferred book, the Corporate Banking loan book grew 17% YoY and 7% quarter-on-quarter. Trade and supply chain finance grew strongly as we have invested in automation to serve our corporate customers and their ecosystem of vendors, dealers, and supply chain partners. GIFT City remains an important strategic driver to meet the global banking needs of our customers including loans, trade finance, acquisition financing, security services, deposits, and investments. Alongside asset growth, we are focused on widening engagement across liabilities, transaction banking and other income streams. This balanced mix of assets, liabilities, and fees is reflected in our healthy ROE in this business. This quarter, fees across trade, foreign exchange, and debt syndication grew strongly. Corporate Bank fee income grew 36% YoY and contributed 20% of bank's total fee income. Corporate liabilities grew driven by granular acquisitions, tax and trade flows, collection and payment services, and capital market deals. Our investment in digital capabilities is paying off with 5x YoY growth in acquiring UPI and a 300 basis point improvement in NACH market share. Let me move to capital market businesses. Our institutional capital market businesses performed strongly, driven by a rebound in primary markets and momentum across investment banking and institutional equities. These businesses enabled us to serve corporate customers through several marquee transactions, including IPOs, block trades, and advisory mandates. Investment banking had a strong quarter across ECM and advisory, and has a strong pipeline, too. Institutional equities maintained its leadership position with global and domestic institutional investors. Cross-selling investment banking and institutional brokerage products added about 109 basis points to Corporate Banking ROE. Custody balances remained impacted by muted FII flows, although domestic traction was good. Let me now move to SME business. Our relationship-led SME franchise delivered healthy growth with advances growing 27% YoY and 10% quarter-on-quarter to about 1.4 lakh crore, and now accounting for 24% of bank's advances. Asset quality remained resilient. We have been an active participant in the government's ECLGS program and have sanctioned Rs. 11,200 crore of ECLGS credit. SME remains a strategic priority for the bank. We see opportunities to expand primary banking relationships across both enterprise and personal banking, including private banking, affluent, retail, and corporate salary franchise. Agri SME, business banking, and corporate SME have been integrated to achieve improvement in productivity, standardization, automation, and customer journeys. We continue to invest in distribution, customer acquisition, digital capabilities, and relationship management, and see significant opportunities for growth while maintaining portfolio quality. Let me turn to our CV/CE business. We are stepping up growth while maintaining disciplined underwriting, ensuring strong collection practices and risk-adjusted returns.
Paritosh (Kotak Mahindra Bank Limited): technology continues to improve client experience and operational efficiency. Fyn, our integrated corporate portal, saw a 34% YoY increase in corporate onboarding and about 60% increase in active customer base as more services become available on the platform. Digital adoption of working capital drawdown and customer service DIY journeys have increased substantially. I will now hand over to Jaideep to take us through the subsidiaries' performance.
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