Kotak Mahindra Bank’s NIM shrinks in Q2, as lender says secured loan book grew, IPO funds added pressure

Kotak Mahindra Bank said the shift in the loan book towards the secured segment resulted in a contraction in the overall yield and NIM.

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26 Aug, 2025 12:21

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Kotak Mahindra Bank reported an 11 basis points (bps) decline in its net interest margin (NIM) during the second quarter of FY25, with the margin shrinking to 4.91 percent from 5.02 percent in the previous quarter. The bank’s management attributed the drop primarily to changes in its loan portfolio mix towards secured advances, and the deployment of IPO funds into low-yielding assets.

The proportion of unsecured loans (such as personal loans and unsecured loans), which typically carry higher yields, declined during the quarter, while the bank saw significant growth in its secured loan book, said Kotak Mahindra Bank’s chief financial officer Devang Gheewala.

Secured loans, such as home loans and business banking advances, generally offer lower yields, and the shift towards this segment resulted in a contraction in the overall yield and NIM. The bank’s total advances grew by 18 percent year-on-year during Q2 FY25.

Also read | HDFC Bank Q2 results: Net profit rises 5% to Rs 16,820 crore, beats Street estimates

Further, the inflow of IPO-related funds added to the pressure on NIM. These funds had to be deployed in low-yielding assets, which further compressed margins, said Gheewala at a post-earnings press conversation. Despite the overall growth in customer assets and a strong increase in secured lending, the change in the loan mix led to lower overall returns on the bank’s assets.

Kotak Mahindra Bank’s customer assets, including advances and credit substitutes, grew 18 percent year-on-year to Rs 4.5 lakh crore, showed the bank’s investor presentation. Secured loans like home loans and business banking loans grew steadily, with home loans increasing by 18 percent and business banking advances up by 21 percent.

On the other hand, the proportion of unsecured retail advances, which includes personal loans and credit cards, stood at 11.3 percent of total advances, a slight decrease from 11.6 percent in the previous quarter​.

Despite the dip in NIM, the bank remains well-capitalised. The management said it is confident of maintaining strong growth across its secured lending portfolio in the coming quarters.