Kotak Bank sees margins steadying as FCNR costs offset repo gains

what happened

Kotak Mahindra Bank expects its net interest margin (NIM) to hold near its second-quarter level in the coming quarters. Outgoing managing director and CEO Ashok Vaswani said on the September-quarter earnings call that costly foreign currency non-resident deposits, known as FCNR(B), will be offset by repricing of repo-linked loans and by moving surplus funds into higher-yielding customer assets.

The bank's NIM fell to 4.31% in the quarter ended September, from 4.53% in the previous quarter and 4.54% a year earlier. Chief financial officer Devang Gheewalla said FCNR(B) deposits and related advances accounted for about 15 basis points of the 22-basis-point sequential decline. The impact is expected to continue into the third and fourth quarters of FY27, according to Mint, which reported the comments.

Total deposits rose 23% year on year to Rs 6.51 trillion, while net advances grew 25% to Rs 5.77 trillion. Gross non-performing assets fell to 1.04% from 1.18% a quarter earlier.

why it matters

For markets, the key point is that the bank expects the full effect of repo-rate transmission to show up in margins in the fourth quarter, while deploying FCNR funds may take several quarters. Investors will watch how Indian lenders' margins evolve as the central bank's measures to attract dollar inflows play out.

market impact

Indian banks: FCNR costs pressure margins, while repo repricing supports earnings

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