Shares of private lender Kotak Mahindra Bank cracked over five percent in trade on Monday, July 28, following the bank's earnings show for the quarter ended June 30, 2025, wherein net profit took a seven percent tumble.

Kotak Mahindra Bank reported a standalone net profit of Rs 3,282 crore for Q1 FY26, marking a 7 percent year-on-year decline from Rs 3,520 crore in the same period last year. This figure is after adjusting for a one-time gain from the sale of its general insurance business. Including the gain, the unadjusted net profit stood significantly higher at Rs 6,250 crore.

The drop in profit was mainly due to a sharp rise in provisioning and contingencies, which surged 109 percent year-on-year to Rs 1,208 crore. Net interest income (NII) rose 6 percent to Rs 7,259 crore, while the net interest margin (NIM) remained strong at 4.65 percent.

Further, Kotak Mahindra Bank delivered higher credit growth at 14 percent YoY, with heavy lifting done by the low-yielding corporate book. This, coupled with lending rate cuts, led to a steep 32 bps QoQ margin contraction to 4.7 percent.

The management expects margin pressure to persist in Q2 as full impact of the 50 bps repo rate cut sinks in, albeit to gradually stabilize and improve thereafter, as cost reduction (including SA cost) flows through. Asset quality too deteriorated, with slippages jumping to 1.9 percent due to stress in

MFI, retail CV, and KCC loans.

At 9.15 a.m., shares of the bank were quoting Rs 2,013.3, lower by 5.3 percent on the NSE.

Should you buy, sell, or hold shares of Kotak Mahindra Bank?

Brokerages noted that after a strong business update, Kotak Mahindra Bank reported weak Q1FY26 earnings with a sharp 32 bps QoQ decline in NIM, a steep rise in specific credit cost from 64 bps to 93 bps (50 percent QoQ in value) and a sharp slowdown in YoY fee growth.

Nomura has maintained a 'neutral' rating on Kotak Mahindra Bank with a target price of Rs 2,150 per share. The brokerage has cut its FY26–28 earnings per share estimates by 3–7 percent, citing asset quality concerns and margin pressure. Nomura noted that the core bank trades at approximately 1.9× FY27 book value per share, indicating limited upside.

Morgan Stanley maintained an 'overweight' rating on Kotak Bank, with a target price of Rs 2,600 per share. The brokerage said that bank’s growth outpaced the industry, but was disappointed by the decline in NIMs and elevated formation of non-performing loans. Q2 to remain challenging due to further margin compression, but sees earnings accelerating thereafter.

"Management expects NIM to bottom out by Q2FY26, supported by the full transmission of rate cuts, deposit repricing, and CRR benefits, with a recovery likely from H2. Growth in the unsecured segment is expected to pick up gradually as the lending environment improves, aiding both growth and margin trajectory," said Motilal Oswal. The brokerage cut its target price on the firm to Rs 2,400 per share, while keep its 'buy' tag intact.

Going ahead, international brokerage Bernstein believes that believes the surge in credit costs and soft asset quality will continue to weigh on Kotak Mahindra Bank’s valuation. It assigned the bank a market-perform rating with a target price of Rs 1,950 per share.