Private Sector Banks’ Q1 FY26 Earnings: IndusInd Bank Versus Kotak Mahindra Bank

Introduction

The quarterly financial performance of Indian private sector banks is closely watched as a benchmark of our nation's economic stability. In the first quarter (April–June 2025) of financial year 2026, both the private sector banks namely IndusInd Bank and Kotak Mahindra Bank released their respective quarterly reports reflecting not only their individual strategies but also the macro level industry trends which are influenced by market volatility, regulatory changes and evolving banking sector developments.

Industry Overview

The Indian banking sector has experienced significant setbacks in the year 2025, due to monetary policy shifts, volatile changes in bank rates and asset quality concerns over its performance. The private banking industry is  influenced by stringent risk management rules, increased competition on low deposit rates and rapid development of digital banking space. Though the demand for credit remains strong, the industry continues to face pressure on rising bad loans and shrinking profit margins.

Company Overview

IndusInd Bank Ltd.

IndusInd Bank is widely recognized for its focus on retail and commercial vehicle loans. IndusInd Bank aims at balancing both traditional and digital banking. In the first quarter of FY2026, the bank experienced a significant drop in net profit, falling by 72% compared to the same period last year, reaching Rs.604 crore. This was accompanied by a 14% decrease in net interest income and a deterioration in asset quality caused by an increase in non-performing loans.

Kotak Mahindra Bank Ltd.

Kotak Mahindra Bank  , a leader in both digital transformation and risk management , has reported its Q1 FY2026 with its combined net profit of Rs.4,472 crores, with a decline on year-on-year basis by 40%. The decline in net profit from previous year is due to a one-time profit in last year along with a high provisioning this year. Kotak Mahindra Bank still managed to grew its loan portfolio by 14%, maintained a good asset quality and a stable return on assets (1.94%) and return on equity (10.94%)

Q1 Key Metrics Comparison 

The first quarter of the financial year 2026 (April to June 2025) highlighted contrasting results for two leading Indian private sector banks namely IndusInd Bank and Kotak Mahindra Bank. Both the banks have faced challenges amidst a dynamic economic environment but their financial indicators reflect different trends.

Profitability Overview

IndusInd Bank experienced a steep decline in profitability during Q1 FY26, with its net profit dropping by 72% year-on-year to Rs.604 crore, sharply declined from Rs.2,171 crore in the same quarter a year earlier. This major decline was mainly due to increasing stress on maintenance of good asset quality and a need for high provisioning.

In comparison, Kotak Mahindra Bank reported a combined net profit of Rs.4,472 crore, a 40% drop compared to Rs.7,448 crore in Q1 FY25. The drop is contributed by prior year’s exceptional one-time gain. On a standalone basis, Kotak’s profit fell 7% to Rs.3,282 crore, driven primarily by slow net interest income growth and higher provisioning costs.

Net Interest Income and Margins

IndusInd Bank’s net interest income (NII) declined by 14% year-on-year to about Rs.4,640 crore, impacted by lower profit margin and competitive challenges. Its net interest margin (NIM) declined sharply to 3.46% from 4.25% recorded in the previous year quarter, reflecting rising expenses.

Conversely, Kotak Mahindra Bank delivered positive NII growth of 6%, reaching Rs.7,259 crore. The bank’s loan book expanded by 14%, but the NIM declined by 0.37% to 4.65%, influenced by the fact that a bulk of its loans are linked to the repo rate, which became less favorable following recent rate cuts by the Reserve Bank of India.

Income and Expense Dynamics

Total income of IndusInd Bank saw a modest 3.8% decline year-on-year to Rs.14,421 crore. However, Operating expenses surged by 7.4% to almost Rs.11,854 crore. Provisions and contingencies increased sharply by 67.6% to Rs.1,760 crore, reflecting a more cautious approach towards asset quality.

On the other hand, Kotak Mahindra Bank exhibited growth in total income, up by 6.5% year-on-year, reaching Rs.26,704 crore. Expenses increased by 5.7% to Rs.19,329 crore, and provisioning costs rose by 70.6% to Rs.1,321 crore, affecting profitability despite operational gains.

Asset Quality

IndusInd Bank’s asset quality weakened during the quarter. The gross non-performing assets (NPA) ratio increased from 3.13% to 3.64%, while net NPA stood at 1.12%. Its provision coverage ratio (PCR) was around 70%.

Kotak Mahindra Bank maintained relatively healthier asset quality with a gross NPA ratio of 1.48% and net NPA at a low 0.34%. Its PCR was stronger at 77%, indicating a strong buffer against potential credit losses despite stresses in segments like  commercial vehicle loans.

Capital Adequacy and Returns

Regarding capitalization, IndusInd Bank’s capital adequacy ratio (CRAR) was 16.63%. However, its returns on assets and equity took a significant hit due to profit decline.

Kotak Mahindra Bank displayed robust capital buffers with a CRAR of 23%, including a healthy Common Equity Tier 1 (CET1) ratio of 21.8%. It reported a standalone return on assets (ROA) of 1.94% and return on equity (ROE) of 10.94% for the quarter, reflecting strong operational performance.

Key Comparison at a Glance

This comparison highlights Kotak Mahindra Bank’s stronger fundamentals and relative stability in midst of market volatility, whereas IndusInd Bank is navigating more pronounced challenges during the same quarter.

 

Loan Book Growth and Segment Highlights

In IndusInd Bank, the expansion of loan book has slowed down as a cautious approach due to rise in NPAs. The retail lending segment, especially commercial vehicle lending, faces pressure which is affecting both the growth and asset quality of the bank. IndusInd Bank continues to focus on improving its portfolio granularity by giving loans to many small customers in order to stabilize its margins.

Kotak Mahindra Bank, exhibited strong loan book growth at 14% year-on-year influenced by consumer loans, mortgages, and SME advances. Kotak’s focus on high-margin retail lending and expanding fee-based income sources to support its revenues even though its margins are compressed.

Cost Control and Efficiency

IndusInd Bank’s cost to income ratio remains high due to low-income growth and higher provisioning. The operational expenses of IndusInd Bank increased as the bank made investments in branch network consolidation and digital initiatives.

Kotak Mahindra Bank, maintained a stable cost-to-income ratio, supported by operational efficiency and strict expense management. Investments in digital banking and process automation helped to control expense growth.

Liquidity and Funding

IndusInd Bank, the liquidity coverage ratio (LCR) remained above regulatory requirements, ensuring liquidity was not a concern despite market challenges. Deposit growth remains a strategic focus, with focus on low-cost CASA (Current Account Savings Account) deposits, though CASA ratios saw slight pressure from increased competition.

Kotak Mahindra Bank, exhibits strong liquidity, with a healthy CASA ratio (usually above 50%), which helps to maintain low cost of funds. With a strong deposit franchise, the bank is better positioned to manage funding costs amid interest rate fluctuations.

Digital Banking and Technology

IndusInd Bank, intensified its digital transformation efforts , by making its retail and corporate customers use digital channels. Key focus areas included are faster digital onboarding, loan disbursal, and improved payment solutions to boost customer engagement.

Kotak Mahindra Bank, continues its leadership in digital initiatives, with a major share of new accounts and transactions originating from digital channels. The bank’s digital-first approach has reduced turnaround times and improved customer satisfaction.

Market Outlook

IndusInd Bank, Short-term pressures continue as a result of asset quality issues and decline in profitability, although continued resource mobilization and technology upgrades should yield dividends in the medium term.

Kotak Mahindra Bank, well-capitalized and adaptive, is positioned for sustained growth. Its retail franchise, asset quality, and technology orientation offer strength in a competitive banking sector.

Analyst Perspective

The general view of analysts is that IndusInd Bank must show real improvement in asset quality and profit consistency before there are any potential signals for upward stock revision.

For Kotak Mahindra Bank, sustained action on loan growth, asset quality, and profitability drivers is likely to support its market premium over peers.

Key Driving Factors Of Both The Private Sector Banks

Loan Book Dynamics: IndusInd mitigated loan expansion during times of increase in defaults, whereas Kotak was retail-focused and diversified its book which facilitated consistent growth.

Interest Rate Environment: Shrink in margin hit both the private sector lenders but was sharper at IndusInd on account of funding cost pressures. 

Technology Adoption: Both the private sector banks spent heavily on digitalization, resulting in enhanced efficiency and customer access, but Kotak reported superior success in translating digital efforts into growth and cost reductions.

Asset Quality Management: Kotak surpassed IndusInd in managing NPAs, supported by judicious underwriting and a strong provision coverage ratio.

Operating Efficiency: Effective cost control and process automation enabled Kotak to have a lower cost-to-income ratio than IndusInd, which was struggling with increasing operating costs because of network expansion and digital upgradation.

Risks and Challenges Of Both The Private Sector Banks

IndusInd Bank:

Asset Quality Deterioration: Increasing NPAs in retail and commercial vehicle businesses continue to pose risks.

Profitability Deterioration: Decline in margins and rising provisions caused sharp decline in profits.

Deposit War: CASA spreads were under pressure due to increased competition, impacting funding costs.

Uncertainty of Recovery: Turnaround is dependent on successful risk management and improving returns.

Kotak Mahindra Bank:

Slowing Margins: Excessive repo-linkage of advances made margins vulnerable to policy rate changes.

Provision Pressures: Rising provisions had impact on profitability and worsening of asset quality management

Regulatory and Market Risks: With growth, Kotak will need to exercise tight risk controls and accommodate fast-changing regulatory and technological environments.

Summary

While IndusInd Bank struggled with a notable drop in profitability, declined margin and worsening asset quality in Q1 FY26. Kotak Mahindra Bank demonstrated greater ability to withstand stress, supported by strong loan growth, better asset quality, and higher capital adequacy. Despite some profit decline due to increased provisions and a strong previous year’s base, Kotak’s overall performance remained robust relative to peer challenges.

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Frequently Asked Questions

Whose asset quality during Q1 FY26 was stronger: IndusInd or Kotak Mahindra Bank?

Kotak Mahindra Bank's gross NPA ratio stood at 1.48%, less than IndusInd Bank's 3.64%, indicating stronger asset quality.

 

What effect did digital initiatives have on the two banks during the quarter?

Both banks increased digital adoption, but the digital transformation at Kotak had a more profound positive effect on efficiency as well as customer acquisition.

 

What was the major challenge that had an effect on profits for the majority of private banks during the quarter?

Margin pressure due to declining net interest margins and increased provisions dented profitability across the board.

 

How was loan and deposit growth for private sector banks during Q1 FY2026?

Both credit and deposit growth were weak, which tempered overall momentum for private banks.

 

Was asset quality an issue in this quarter's performance?

Yes, increased non-performing assets and higher provisioning needs were reported as issues for a few banks.

 

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