Home Kotak Mahindra Bank Stock Analysis

Kotak Mahindra Bank Stock Analysis

The stock analysis of Kotak Mahindra Bank including the financial analysis report linked below, is for information purpose only.  This analysis should not be taken as a buy/sell recommendation. The circumstances of the company and the economic environment may have changed since the date of this stock analysis. Click the link for an updated list of the blue chip companies in India.

Kotak Mahindra Bank Limited operates in different divisions through various subsidiaries:

Kotak mahindra bank

►   Kotak Mahindra Bank – Consumer, Commercial, Corporate Banking

►   Kotak Mahindra Prime – Car Loan

►   Kotak Mahindra Asset Management Company Limited – Asset Management

►   Kotak Securities – Brokerage

►   Kotak Mahindra Capital Company – Investment Banking

►   Kotak Mahindra Old Mutual Life Insurance – Life Insurance

Factors below present an equity stock analysis of Kotak Mahindra Bank Limited. For financial reports, visit here – Kotak Mahindra Bank Limited.




Merger of ING Vysya Bank with Kotak Mahindra Bank

ING Vysya Bank, a private sector bank, merged with the Kotak w.e.f. 1st April, 2015. Following the merger, Kotak Mahindra became India’s fourth largest private sector bank. The merger is expected to strengthen Kotak’s market position, provide wider distribution and enable the Bank to compete better with larger private players such as HDFC Bank and ICICI Bank.

Complementary Branch Network

On the date of acquisition, ING Vysya Bank had over 577 branches and 10 extension counters. The merged entity will have 1,261 branches and 1,930 ATMs. Kotak Mahindra Bank has its operations focused predominantly in metros. This merger will help Kotak tap into ING Vysya Bank’s better mix of rural and urban branches. Also, ING Vysya will provide Kotak with strong presence in two key southern states — Karnataka and Andhra Pradesh. Combined branch coverage (post merger) as on 1st April, 2015 is as below:

Branches ING Vysya


Kotak (Merged)

West 13%



North 22%



South 61%



East 4%



Total 577



ATMs 657



Strong SME presence

The merger will also increase Kotak Mahindra Bank’s presence in the Small and Medium Enterprise (SME) segment, which currently accounts for only 8 % of Kotak’s loans. On the other hand, SME segment account for 38 % of ING Vysya Bank’s loan book. The merger will help Kotak enhance its presence and benefit from ING Vysya’s expertise in the SME space.

Robust loan growth coupled with healthy asset quality

kotak mahindra bank deposit and profit

Over the last five years (i.e. 2010-2015), total deposits with Kotak have grown at a CAGR of 20.67 %. For the same period, profit after tax grew at a CAGR of 14.21 %. For FY 2015, Kotak reported a healthy 23.63 % loan growth (compared to 8.20 % for FY 2014) despite sluggish economy and lower loan off-take in both wholesale and retail segments. Net Profit for the same period grew 22.04 % (compared to 13.94 % for FY 2014). Operating expenses grew by only 15.10 % in comparison to a 25.69 % increase for FY 2014. The asset quality for Kotak is amongst the healthiest in the industry. Gross Non-Performing Assets (“GNPAs”) for FY 2015 stood at 1.85 % of gross advances, and Net Non-Performing Assets (“NNPAs”) came at just 0.92 % of customer assets. In the last few years, there have been many challenges with respect to NPAs for the banking system due to bad economic and business environment.

Net NPAs (In %)

Year HDFC Bank


Kotak Mahindra Bank

Axis Bank

FY 2011 0.19




FY 2012 0.18




FY 2013 0.20




FY 2014 0.30




FY 2015 0.20




Over the next 1-2 years, we expect the Government of India to continue with its aggressive reforms programme which is likely to improve the overall economic scenario. The Indian banking industry will be a direct beneficiary as growth momentum picks up in other industry sectors. We believe that Kotak will outperform its peer group over the next 2-3 years.

Growth from non-funded revenue stream

Non-funded revenue (i.e. other income) largely constitutes of fee income such as commission and brokerage fees and client based merchant foreign exchange trade, service charges from account maintenance, transaction banking (including cash management services), syndication and placement fees, processing fees from loans and commission on non-funded products (such as letters of credit and bank guarantees) etc. Growth in other income or non-funded revenue is good for the bottom line (i.e. net profit) as income from this stream is derived without significant mobilisation of deposits and hence the cost associated with this income is relatively lower compared to interest income. Banks in developed countries derive nearly 50% of their income from these non-funded sources.

For financial year 2015, ~ 56% of Kotak’s operating revenue came from non-funded segments such as fees and commissions for services. In percentage terms Kotak earns a major portion of its net income from non-funded revenue stream which is extremely healthy for a bank with Net Interest Margin (NIM) of 4.93%.


Net Interest Margin (“NIM”)

Other Income (non-funded revenue) as % of total income

Kotak Bank


56.06 %



28.99 %

Axis Bank


38.06 %



60.89 %

*For the financial year 2015

Net Interest Margins (NIMs) (In %)

Year HDFC Bank


Kotak Mahindra Bank

Axis Bank

FY 2011 4.25




FY 2012 4.44




FY 2013 4.50




FY 2014 4.40




FY 2015 4.40





Risk Relating to Foreign Investment Limit

Following the merger of ING Vysya Bank with Kotak Bank, the foreign shareholding in the merged entity (i.e. Kotak Bank) has reached 48.55%. The R.B.I. has banned foreign investments in Kotak Bank after foreign shareholding hit the permissible threshold limit*. Kotak is seeking Foreign Investment Promotion Board (FIPB) approval to raise the aggregate foreign investment limit to 55 %.

An approval from the FIPB to increase the limit to 55 %, would automatically qualify the bank as ‘foreign-owned’. While FIPB may allow this for the banking sector, Foreign Direct Investment (FDI) limit in the insurance sector remains at 49% in accordance with Indian laws.

An FDI circular of May 2015 issued by the Department of Industrial Policy and Promotion laid out that an Indian company must have a resident Indian either singly or in combination holding at least 51% shares.” On 16 June, 2015, FIPB deferred decision for the second time on the company’s proposal for raising foreign investment limit in the bank to 55 %. The decision was deferred for want of comments from the Department of Financial Services who are likely to submit their comments by the end of this month.

*Foreign investors can acquire up to 49% stake in Indian companies through automatic route, but beyond that requires the approval of Foreign Investment Promotion Board (FIPB), headed by the economic affairs secretary in the finance ministry.

Intense competition, threat of new entrants

Many of the services that were traditionally performed by the banks are now being performed by other players such as depositories, NBFCs and brokerage houses which have intensified competition in the banking industry. Additionally, R.B.I. has awarded new banking licenses to NBFCs – IDFC and Bandhan which will further intensify competition. Additionally, development of technology has resulted in availability of multiple delivery channels for customers such as ATMs and phone and internet banking. As technology develops further, some of the advantage enjoyed by banks like Kotak, such as a branch network could become a drain on the revenue stream.

Inflation and Cost of Funds

R.B.I.s interest rates directly impact the banking sector. Availability of funds (with banks) depends on R.B.I’s monetary policy. While inflation has reduced over the past few quarters, in case this is not sustained, R.B.I. is likely to continue with its tight monetary policy and is unlikely to cut policy rates further. At the same time R.B.I. has mandated that all banks pay a minimum of 4% interest rate on all savings accounts. This has increased the cost of funds and kept margins under pressure. A rise in inflation and consequently R.B.I.s interest rates could have a negative impact on the financial performance of Kotak Mahindra Bank and on the banking sector as a whole.