India's Kotak Mahindra Bank slumps as earnings spark asset quality concerns
The stock fell 6.4% to 1,988.60 rupees, the lowest since mid-March and was the worst performer on India's benchmark Nifty 50 index (.NSEI), opens new tab, which slipped 0.1%.
Kotak was also the top laggard on the bank (.NSEBANK), opens new tab and private bank (.NIFPVTBNK), opens new tab indexes.
At least eight analysts slashed their price targets on the "buy"-rated stock after the private lender missed quarterly profit estimates on higher provisions for potential bad loans.
Asset quality pain continued for Kotak and stress in the retail commercial vehicles segment is expected to rise further, analysts at Ambit said.
"Considering such volatility, and limited availability of buffer provisions, we expect fiscal 2026 credit costs to remain elevated," they said.
Kotak, like several Indian banks, has been grappling with rising bad loans in the unsecured loan segment. Its gross non-performing assets ratio worsened to 1.48% of total loans at the end of June from 1.39% a year earlier.
Its net interest margin, a key gauge of profitability, dropped to 4.65% from 5.02% a year earlier, reflecting the impact of the Reserve Bank of India's interest rate cuts.
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.
Earlier this month, peer Axis Bank also reported disappointing results, which fanned concerns of declining asset quality.
The session's losses have trimmed Kotak's year-to-date gains to 11%, versus a 10% climb in the private banks index.
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