A Tale of Two Numbers: Profit vs. NII
Kotak Mahindra Bank recently shared its financial report for the second quarter of the 2025 fiscal year. Generally, when a major bank announces its results, investors and customers look for clarity. This time, however, the report presented a somewhat mixed picture, sparking curiosity across the Indian market. Net Interest Income (NII), which is the core earning for any bank—the difference between interest earned on loans and interest paid on deposits—showed a healthy growth of 4%. This suggests that the bank's fundamental lending business is still expanding, which is a very encouraging sign for its long-term health.
Furthermore, a higher NII usually points to either strong loan book growth or a wider interest margin. Therefore, the 4% increase confirms that the bank is effectively managing its cost of funds and increasing its credit disbursements to customers across India. Nevertheless, the overall sentiment was tempered by another crucial figure: the bank’s net profit actually saw a slight decline when compared to the same quarter last year.
Decoding the Dip in Profit
Despite the positive momentum in NII, the bank’s net profit for the quarter ending September 30, 2025, dropped by 2% to settle at ₹3,253 crore, down from ₹3,344 crore a year ago. Clearly, this small decline raises a straightforward question: if the core income is up, what pulled the final profit down? Consequently, this typically points to factors other than core lending income, commonly known as operating expenses or provisions that banks set aside.
For example, when a bank hires more staff to improve customer service, invests heavily in new technology like digital banking platforms, or expands its physical branch network across smaller cities, the operating expenses naturally go up. Moreover, banks are also required to set aside funds, known as provisions, to cover potential bad loans. If the bank decides to become more cautious and increases these provisions significantly, it will directly reduce the final reported net profit, even if NII is strong.
What This Means for the Common Investor
For the retail investor watching the market in India, understanding these nuances is essential. Essentially, a bank’s performance isn't just about the final profit number that appears in the headlines. Additionally, NII growth is a critical metric, as it shows the underlying business strength and future earnings potential. Therefore, while the 2% dip in profit might appear negative at first glance, a deeper look shows stability in the core business.
Here are the key takeaways from the Q2 results:
Core Business Strength: The 4% rise in NII confirms that the bank's foundational lending and borrowing activities are robust and steadily growing.
Prudent Approach: The profit dip is likely due to non-core factors, suggesting a potentially prudent approach to setting aside provisions for future risks, which is a sign of financial discipline.
Year-on-Year Stability: A 2% profit decline is relatively minor, showing that the bank has largely maintained its high profitability levels despite a challenging global economic climate.
Looking Ahead: The Road to Growth
The slight dip in net profit is certainly not a major cause for alarm, especially when considering the strong growth in the bank's primary revenue stream. In contrast, this set of results tells a story of a bank investing in its future operations and maintaining conservative accounting practices. Besides, with the Indian economy continuing its upward trajectory, the demand for retail and corporate credit remains high. In summary, as long as the bank maintains its operational efficiency and continues to grow its NII, the final profit figures are expected to catch up and show stronger growth in the coming quarters.
