Kotak Mahindra Bank flags stress in vehicle loans, resumes microlending cautiously

Retail stress seen peaking in MFI

Kotak Mahindra Bank is treading carefully in retail commercial vehicles (CVs), while micro-finance (MFI) disbursements are being restarted selectively following a period of stress in asset quality, said Deputy Managing Director Shanti Ekambaram.

Speaking during the bank’s Q1 FY26 earnings call, Ekambaram acknowledged growing stress in the retail CV portfolio, noting that the segment, which is closely tied to logistics and infrastructure, is now reflecting the impact of a broader economic slowdown.

“There has been some stress on the retail CV segment and we are monitoring it very closely,” Ekambaram said. “This is a good business with healthy ROE, and we continue to disburse, but we had already tightened our stance last quarter.”

Ekambaram elaborated that delinquencies in retail commercial loans spiked during the quarter, attributing it to the macroeconomic backdrop. “It’s the slowing macro now playing out in the micro,” she said, adding that the bank would continue to dynamically manage exposure.

On the SME side, the bank reported growth, particularly in mid-market and reclassified corporate lending segments. Ekambaram noted that SME remains an important customer base, but lending decisions are being taken more cautiously in light of current conditions.

“Growth in the corporate book has actually been driven by SME and mid-market services,” she said. “We are reclassifying some parts of the book and serving these customers better, but we are also watching trends closely.”

The bank’s microfinance book, which came under stress from Q3 FY25 onwards, appears to have hit a turning point, according to CEO Ashok Vaswani.

“Q1 FY26, we believe, is the peak of the stress. We have selectively started going back into MFI disbursements,” he said, pointing to a stabilising trend.

Ekambaram clarified that disbursements are resuming across states — including Karnataka, Tamil Nadu, Gujarat, Bihar, and Delhi — but with a calibrated approach. “Karnataka has improved, but we remain cautious given structural and cyclical challenges,” she said.

The bank’s credit cost rose to 0.93% in Q1 FY26, compared to prior quarters, primarily due to MFI and retail CV stress. Gross NPAs stood at 1.48 percent and net NPAs at 0.34 percent as of the end of this quarter.

Despite the increase in provisions, both Vaswani and Ekambaram emphasised that these risks are manageable and likely to recede in the coming quarters. “We think MFI delinquencies have peaked. And even with CVs, we are seeing early signs and taking proactive steps,” Vaswani said.

To maintain high quality growth, the management said, he bank is also investing in digital platforms like 811 and has recently launched the Solitaire proposition for affluent customers, supporting deposit mobilisation and cross-sell opportunities.

“The concept of good quality performs well for our growth portfolio,” Vaswani said. “We are very focused on ensuring that our credit expansion remains sustainable.”The lender came out with its Q1 FY26 numbers on July 26, wherein it reported, a standalone net profit of Rs 3,282 crore during Q1 FY26, registering a 7 percent year-on-year decline from Rs 3,520 crore in Q1 FY25.

The net profit numbers come in after adjusting for the one-time gain from the sale of its general insurance business. Including the gain, the unadjusted net profit was significantly higher at Rs 6,250 crore.

According to the investor presentation, the decline in profit is primarily attributable to a substantial increase in provisioning and contingencies, which rose 109 percent year-on-year to Rs 1,208 crore.

The net interest income (NII) of the bank rose by 6 percent year-on-year to Rs 7,259 crore, while the net interest margin (NIM) stood at a robust 4.65 percent. However, the cost-to-income ratio remained high at 46.19 percent, and the return on equity (ROE) moderated to 10.94 percent from 13.91 percent in the same quarter last year.