Kotak Mahindra Bank Ltd (NSE: KOTAKBANK) Q4 2025 Earnings Call dated May. 03, 2025
Corporate Participants:
Ashok Vaswani — Managing Director and Chief Executive Officer
Devang Gheewalla — Group Chief Financial Officer
Shanti Ekambaram — Deputy Managing Director & Director
Analysts:
Kunal Shah — Analyst
Anand Swaminathan — Analyst
Param Subramanian — Analyst
Piran Engineer — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Kotak Mahindra Bank Q4 FY ’25 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Mr. Ashok Vaswani, Managing Director and Chief Executive Officer of Kotak Mahindra Bank. Thank you, and over to you, sir.
Ashok Vaswani — Managing Director and Chief Executive Officer
Thank you. Thank you so much. Good evening, everyone, and thank you so much for joining us. I do apologize for running a little late this evening. I hope it’s not created any inconvenience. At the end of fiscal year 2025, let me share some of my recollections with you. In Q1 calendar year ’24, we defined the strategy at a group level. Kotak has a very strong product platform. We manufacture virtually every financial services product.
The essence of this strategy is to bring together relevant products and services in the form of propositions for defined customer segments. Thus, we are seeking to move from a product-centric approach to a customer-centric approach. We believe that doing this will enable us to transform for scale. We will stay focused on delivering this objective.
In 2025 fiscal year, while we began to execute this strategy, we had to navigate through three notable events during the year. Number one, we had the technology embargo, which had a direct impact on our Cards and 811 businesses. This resulted in the share of unsecured loans to our total net advances declining from 11.8% in FY ’24 to 10.5% in FY ’25. The acquisition of the Standard Chartered personal loan portfolio partially helped us in holding up these shares.
Despite the embargo distraction, we stayed true to our strategy. We invested time and resources to not only fix the underlying technology issues, but also redefined our go-to-market digital strategy. This was reflected in the launch of our new mobile banking and 811 apps. Two, the microfinance industry has seen significant credit strains, something we had highlighted in Q1 of fiscal year ’25. We have proactively managed the business to bring down the retail microfinance book by 33% Y-on-Y, which now constitutes only 1.6% of total net advances.
Having said that, we expect credit costs to stay at this elevated level for the next two quarters. Interestingly, despite this strain, the microfinance business has been profitable on a full year basis. The strategic question that we’ll have to answer is whether the changes in the industry are cyclical or structural, and what changes we make to the business model, which will determine our approach to this segment.
Thirdly, we saw segments of customers who had overlapped themselves, and this reflected in higher delinquencies in unsecured personal loans and credit cards. We moved early to take corrective measures by tightening our underwriting standards. The behavior of our unsecured portfolio is panning out broadly as we had predicted. The stress NPL continues to show a reducing trend, where the credit card portfolio continues to plateau, and we are hoping to see a decline in the second half of the year. The Standard Chartered personal loan portfolio is performing as expected. Despite these headwinds, we grew the business.
The Kotak Group is a diversified financial conglomerate with four engines of growth, banking and lending, capital markets, asset management and protection. And these four engines provide us with countercyclical benefits.
In the banking business, average advances grew by 18% year-on-year in FY ’25, 13% on an end-of-period basis. This is very much in line with our prudent philosophy to grow the book at about 1.5 times to 2 times normal GDP growth. Total average deposits grew by 16% in full year ’25, 11% on an EOP basis. CASA ratio stood at a healthy 43%. The mix of deposits between CA, SA, active money and TD enabled us to optimize our cost of funds at 5.10% in full year ’25. We are very focused on managing the cost of funds effectively. We continue to maintain a disciplined approach towards managing our CD ratio, which stood at 85.5% at the end of the period.
Our capital market businesses had a stellar year. Given our business leadership position and strength in the booking, investment banking and asset management businesses, we were able to take advantage of the market buoyancy. This is evidenced by around 75% year-on-year PAT growth in our asset management business and 40% PAT growth year-on-year in our capital market businesses. Our insurance businesses continued to drive value creation with EV growth of 16%. Earlier this year, we unlocked significant value with a stake sale in KGI. At a group level, we delivered a consolidated book value per share growth of 21% this year.
Moving on to FY ’26. We continue to stay on cost with our strategy and deal with the risk and opportunities as they arise. On the positive side, we’ve seen an easing of liquidity and with the lifting of the tech embargo, we have restarted our cards and 811 acquisition engines. On the flip side, there’s a risk of global uncertainties emanating from trade and tariff arrangements, geopolitical issues and downward trends in interest rates. We will continue to closely monitor these developments and cost-correct where necessary. In terms of implementation of our strategy, FY ’26 has started on a very strong note. We recently launched the Kotak Group brand campaign, Hausla Hai Toh Ho Jayega, which for the first time, pulls together the power of the entire group. Early feedback shows strong resonance and a significant lift in brand scores.
Two, we have sharpened our proposition by customer segments. We have recently launched Solitaire, our proposition for the truly affluent segment. This proposition seamlessly brings together all the relevant products, including products from Kotak Securities, Kotak AMC, Kotak Life and Kotak Prime in a very simplified and convenient panel. For our core India customers, we strengthened the 811 proposition, offering payments, protection from Kotak Life and Zurich Kotak General, investments from the asset management company and borrowings on the new 811 app. We are already seeing encouraging signs of customer relationship deepening.
811 continues to provide us an increasing share of access to low-cost granular deposits. For our corporate and SME customers, we have significantly strengthened our cash and trade platform to help deepen relationships with them. We have a strong proposition in place for the private bank, and we will continue to strengthen our product proposition, leveraging the corporate bank, asset management and the capital market businesses. We are investing significantly to make it easier for our colleagues to serve our customers through process reengineering, automation and digitization. As I mentioned before, our focus will be to continue to drive the implementation of our strategy while watching — keeping a very watchful eye on events that could have an impact on that business.
With that, let me hand over to Devang to take you through the details of the financials.
Devang Gheewalla — Group Chief Financial Officer
Thank you, Ashok, and good evening, friends. As Ashok mentioned, this has been an eventful year. As a group, we navigated this period continuing on core principles of governance, prudence, risk management, controls and compliance, remaining focused on our objective of transforming the organization for scale with customer centricity. Since this is the year-end, let me reflect on some of the key events that played out during the year, including unlocking of value in Kotak General Insurance where we received a consideration of INR4,096 crores.
Transitioning successfully through the RBI embargo, remaining well within the initial cost estimate, which we had given. And dealing with a challenging credit environment for unsecured businesses where we saw the bank credit cost for the year increased to 60 bps from 40 bps last year. This year for stand-alone bank was on a backdrop of two consecutive years of high profitability of 25% each year due to higher mean and benign credit environment and also included some of the one-off gains in last quarter of last year, as highlighted in our investor presentation.
With this backdrop, let me start with performance of the consolidated financial statements. FY ’25, consolidated profit stood at INR22,126 crores, up 21% Y-o-Y, 5% Y-o-Y, excluding gain on the divestment of KGI of INR3,013 crores. The consolidated net worth stands at INR157,395 crores at March end, with a book value per share INR792, which grew at 21% Y-o-Y basis. We ended this quarter with consolidated profit of INR4,933 crores. For the purpose of consolidation, our group entities, excluding insurance entities have now aligned with RBI direction on valuation investment portfolio in this quarter, resulting in MTM gain on the valuation of investments of INR411 crores post-tax in the consolidated profit for this quarter, an increase in the net worth by INR1,262 crores at March 31, ’25, which included the quarter profit of INR411 crores.
Let me explain what it is. Till date, subsidiaries in their respective stand-alone financials have been reporting investment gains based on the Indian accounting norms. However — in this accounting, I’m sorry, however, for the consolidated financial statements, such gains were ignored under the Indian GAAP. With this change, net worth at March 31, ’25 has been adjusted for INR1,262 crores into the MTM gain during the year on the subsidiaries investment INR411 crores net of tax. These investments have been made primarily by the capital and AMC subsidiaries on deployment of excess capital. And hence now, the consolidated results actually reflects the earnings on the excess capital deployed by the companies. Our consolidated customer assets stands at INR537,000 crores, which is about 12% higher than last year. AUM managed by the group stands at INR669,000 crores grew by 20% over the year. Our capital adequacy at the consolidated level remains healthy at group level at 23.3%, with CET1 itself of about 22.3%. ROE at consolidated level was 13.12% for FY ’25 and ROA at 2.36% for the FY ’25, both excluding the gain on KGI investments.
Let me start with now the individual entities. FY ’25 stand-alone bank profit stood at INR16,450 crores, up 19% Y-o-Y, including the gain on divestment of KGI of INR2,730 crores. Profit, excluding KGI gain was INR13,720 crores. Bank ended the quarter with a PAT of INR3,552 crores. As we highlighted last year quarter ’24 included one-off gains aggregating to a PAT improvement impact of INR426 crores. The bank delivered the ROA, excluding KGI gain of 2.2% for the quarter as well as for the full year. At the bank stand-alone level as well, the capital adequacy remain healthy at 22.2%, of which the CET1 itself is 21.1%. Advances grew INR444,000 crores, up 13% Y-o-Y on EOP basis whereas average advances for the year grew at 18% Y-o-Y. Bank completed the exhibition of Standard Chartered personal loan portfolio during the Q4 of ’25.
Unsecured retail advances at March ’25 at 10.5%. Previously, it was 11.8%. As we slowed down disbursement in Microfinance business and credit card business due to impact on embargo. CASA ratio at 43% at margin with fixed rate SA growth of 2% on a Q-o-Q basis. Average total deposits for the year grew at 16% Y-o-Y, of which current account balances grew at 8% Y-o-Y. Average total term deposits growth of 28% for the full year and included growth of active money deposits by 46% Y-o-Y. Bank continues to maintain healthy and disciplined CD ratio at 85.5% on March 31. NIM for the quarter actually improved to 4.97% on a sequential basis with benefit of saving account rate cuts and higher average current account balances. NIM for the year, full year is 4.96% is lower by 36 bps on a Y-o-Y basis, mainly impacted by higher cost of funds and lower mix of retail unsecured advances.
Fees and services grew at 11% Q-o-Q in current quarter, led by distribution income. Growth in the fee income for credit card and 811 products in FY ’25 got impacted by embargo with corresponding reduction in acquisition as well as the product cost. Our tax spend for financial year ’25 at 12.5% of total FX as we continue to invest in technology for sustainable efficiency going forward. Our Q4 ’25 operating cost includes cost of Kotak brand campaign, Hausla Hai Toh Ho Jayega, as we prepared to relaunch product and services impacted by embargo for our targeted customer segment.
During FY ’25, we added 200 branches versus 168 branches added in last year. Coming to the credit cost part of it, gross NPE at March 31, 1.42% with net NPA at 0.31% with the PCR improved to 78%. Slippage reduced during Q4 to INR1,488 crores compared to Q3 INR1,657 crores mainly due to reduction on secured and personal loan businesses. Credit costs for Q4, 64 bps compared to 68 bps in Q3 due to recoveries and settlement in secured businesses.
On retail unsecured credit costs, we see personal loan credit cost and slippages showing reduction. Credit card, credit cost and slippages remaining at the same level while not increasing whereas the microfinance credit costs and slippages remains at elevated level, and we expect that to continue for a couple of more quarters. The secure book continues to have negligible delinquencies. Overall, the bank performance for financial year ’25 are impacted by normalization of NIM and increase in the credit cost in unsecured business.
Coming to the subsidiary performances, Capital Market business related subsidiaries had an extraordinary year. Kotak Securities recorded full year profit of INR1,640 crores, up 34% on a Y-o-Y basis. This included MTM gain of INR115 crores in Q4 FY ’25, which I explained earlier. Kotak AMC and Trusteeship Company recorded a full year profit of INR977 crores, last year, INR525 crores, impressive 86% growth with 49% increase in the equity average AUM, which is now just a shade under INR3 lakh crores. Kotak AMC and Kotak Trusteeship profit included again the MTM gain of INR164 crores in quarter four ’25.
Kotak Mahindra Capital, which is the investment banking arm, full year profit, again, was INR361 crores, up 68% on a Y-o-Y basis, backed on large IPO and QIP mandates. KMCC continues to be ranked number one in equity capital market for third consecutive year and also ranked one in the advisory business.
Kotak alternate asset AUM grew by 6% Y-o-Y now to around INR48,000 crores. The other lending entities other than bank, Kotak Prime customers grew to INR40,000 crores with a Y-o-Y growth of 16%, and the tax for the Q4 was INR297 crores, up 34% Y-o-Y. And for the full year, profit grew by 14% Y-o-Y to INR1,015 crores. BSS Microfinance business corresponding ended the quarter with a loss of INR91 crores due to lower disbursement and increasing collection-related costs owing to increasing delinquency in select states. BSS net worth continues to be healthy at INR936 crores at March 31, 2025.
Kotak Life ended the quarter with a PAT of INR73 crores against INR109 crores same quarter last year, primarily due to higher actuarial provision requirement on account of interest rate change. Kotak Life continues to maintain high solvency ratio of 2.45 times against the regulatory requirement of 1.5x, with an embedded value growing by 16% to INR17,612 crores as against INR15,242 crores last year.
To conclude, current year’s; group performance reflects the strength of our conglomerate model as evidenced by the strong growth in our capital market and AMC businesses with nonbank entities contributing 29% to the group profit.
With this financial update, I hand it over to Shanti for business update.
Shanti Ekambaram — Deputy Managing Director & Director
Thank you, Devang. From a balance sheet perspective, this quarter, deposits grew 5% quarter-on-quarter and assets — customer assets, including credit substitutes grew at 4%. On an average basis for the year, advances grew 18% Y-o-Y and average deposits grew 16%.
Let me start with assets and with consumer assets. Consumer assets was primarily led by secured businesses, which grew 19% Y-o-Y and 4% on a quarter-on-quarter basis. Mortgages. Mortgages comprising of Home Loans and LAP grew 19% on the back of a strong Q4 numbers. Quality of the book continues to support our growth focus in these businesses. As I have said earlier, mortgages helped us cement a long-term relationship with our customers and increase the wallet share, particularly in the affluent segment, and thus, will continue to remain a focus area. The last business continues to be steady. We have always been a strong player in this segment given our strength in the self-employed space, and this will continue to be a focus going forward. We upgraded our tech platform for mortgages, which resulted in better transparency and customer experience in this highly competitive segment.
Business banking. Our secured business banking comprising of small and micro SME continue to see good growth at 19% Y-o-Y. Our portfolio metrics continue to perform well across industry in various geographies. In this business, we were able to serve the customer across all their financial and nonfinancial needs, both business and individuals. This business is around our branches, and we will continue to focus and grow this segment. On the unsecured business loan segment, we continued to grow well, and the book is overall stable at the portfolio level.
Personal loans. We’ve seen that the industry growth rate has come down to 10% to 12% Y-o-Y as compared to 25% previous. And this has been so at Kotak as well. Two reasons for that. One, we had the impact of embargo in the first five months as the journey has stopped, and we also tightened our underwriting norms at the beginning of this year. A lot of the growth has come in from ETB customers through repeat programs and top-up and the delinquency has been on the positive side, and we have seen better trends on flows and collections.
Credit card business was under embargo and thus we should not include — we could not issue new cards during the year. However, we focused on our existing customers and their spend to maintain our portfolio as well as monitor it well. We saw stress in line with the industry, but we have seen stabilization of flow in this quarter. Cards is a core proposition for our customer base, and we have new launches and initiatives catering to key segments in the pipeline to grow this business.
Let’s move to commercial assets, commercial vehicles to begin with. At an industry level grew 2% Y-o-Y. For the whole year, actually, it degrew. The Goods Vehicle segment business actually degrew by 3%, majorly on account of low government spending in many states as well as heatwave and liquidity tightest in the first half of the year. We moderated our disbursements over the last few months in this segment, considering overall economic trends and sectoral trends. We continue to grow our used finance vehicle business, considering the comfort that a significant part of this business comes from our existing customers. In Q4, collection efficiency remained flat at Q3 level and including improvement in the early buckets. We will continue to focus on profitable growth on relevant customer segments in this business.
The construction equipment industry was stable. We have grown better than the industry, which helped us improve our market share. Portfolio trends in this segment are stable. Tractor industry witnessed 17% Y-o-Y growth for Q4, coming on the back of lower base of the second half of last year due to better monsoon, better reservoir levels, we grew our disbursements broadly in line with industry and continue to be a very key player with a strong market sense and market share. We continue to grow our used tractor financing business as well. With a normal monsoon forecast this year, we expect cash flows in the rural and semi-urban areas to improve, and collection efficiencies in Q4 was better than in Q3.
Microfinance, I think enough has been said, the industry showed delinquency. This had impacted us as well, and that’s why we degrew our portfolio. We continue to tread cautiously in most markets in this space. We have moved some of the data science models we look at customer risk and underwriting norms across states to onboard better customers. We will wait to see in the next few quarters, whether this is a cyclical or a structural trend and then grow our business cautiously.
Agri-SME, we continue to build the book with focus on LTV customers across core as well as food agro processing. Portfolio in this segment continues to be very stable. I will focus on the wholesale side of the business now, where the focus was granular growth, and in the corporate SME business, we witnessed very strong asset growth of 31% Y-o-Y and 6% Q-o-Q. Both in SME as well as in mid-market, acquisition of new customers was a major focus, and we’ve seen good areas, good strength.
Placement spreads have actually improved in the quarter despite aggressive pricing in the market and we continue to invest in technology, patient processes and customer outreach programs. In the wholesale, in the large corporate segment due to the very competitive pricing, we actually degrew the short-term advances at the end of the quarter, but we move to focus on credit substitutes, which look very interesting, both in bonds as well as commercial paper.
Including credit substitutes, our assets in this space grew at 6% Y-o-Y and 3% Q-o-Q. In the debt capital markets, which is a strong syndication business, it clocked its ever-highest fee supported by record volumes and closure of large marquee deals across products and sectors, reflecting our market position. Our asset quality across the customer segments and the wholesale side continues to be very robust, and we did not see any slippages in the quarter. Customer profitability, actual deeper penetration through transaction banking and higher fee income will be the cornerstone of this business.
Let me now turn to liabilities. I talked about the fact that in this quarter, we saw a growth of 5% in deposits, 16% average Y-o-Y, and our CASA ratio stood at 43% as of March ’25. On the savings side, our regular SA grew at 2% Q-o-Q. There’s been a higher average monthly accretion in the last two quarters of ’25 in saving. With our focus on affluent and mass affluent, we are seeing better quality customer acquisitions who are highly engaged on digital platform. We hope to launch some new product and proposition for our customers in the affluent segment of savings and hope to see better growth as we get into the quarters.
Kotak 811 was under embargo last year. So we have focused on cross-sell to the existing customer base as well as upgrading the tech platform for better experience. So Kotak 811 deposits, which are granular in nature in savings continued to grow despite the embargo. Digital acquisition has commenced with a superior product and tech experience, and this will be the focus of 811 will be to serve core India. So we’ve strengthened our proposition for CASA and are actively tapping our internal ecosystems for building it.
Current account. The average current account for the quarter grew at 9% Y-o-Y. On the consumer side, we have consolidated our acquisition on the self-employed space, and we have actually seen our best-ever quarter on the MTB side in terms of value in current accounts. On the wholesale side, we continue to focus on garnering greater share of customer collections, payment flows and liability balances, which has seen strong growth this quarter. We’ve also strengthened our position in the tax payment space with throughput increasing 30% Y-o-Y.
Custody of key strength and a key focus area, including on the domestic front, where we continue to deepen our market penetration successfully. We all know that new clients across both domestic and offshore custody business and this will continue to be a core area. In terms of term deposits, our term deposits grew at 16% Y-o-Y. Retail TDs have shown strong growth across all quarters, our core proposition with active money helped us grow our customer deposits. Active money grew by 18% Y-o-Y. We will continue to focus on our key segments for savings growth and balance between savings, active money and TD in a granular manner for the overall deposit growth as well as optimize our cost of fund. The system liquidity has seen significant improvement, and this should be beneficial to banks from a deposit perspective.
We’ve also taken several initiatives to enhance the customer experience through our Customer 360 approach, customer service and grievance redressal systems. On the transaction banking side, we continue to invest in technology and digital for both corporate and SME customers. Overall, we have seen reasonable growth in both asset liability, and we remain focused on growing both the segments based on quality acquisition, deepening customer franchise, enhanced customer experience and cutting digital platforms.
I will now request the operator to open for Q&A. Thank you.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
The first question is from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah. So firstly, the question on provisioning coverage. Now, it is raised to almost 78-odd-percent and we are clearly seeing the decline in the slippages as well. So firstly, is this PCR largely the catch-up provisioning on the unsecured wherein maybe the 100% is provided with a lag and not maybe within 90s days? So is that the fair assumption, or this is more like a conservative step to get it in line with the industry average? And maybe given this PCR and declining slippages, what would be the outlook on the credit cost?
Ashok Vaswani
Kunal, so the PCR, you are right, I think it has improved to 78%. I think PCR, as you know, is the provisions, which we made on the NPA cases. Now, with the accretion in the gross NPA itself slowing down, I think that is one of the reasons why it is improving. And I think what we are seeing is that the new book, which we are writing in the unsecured loans, it is much more better credit quality. However, the book which has been already become delinquent, the balance provisioning will be required under our policy going forward for the next couple of quarters. So you — we will see provisioning for the old book, which is yet to be fully provided, whereas for the new book, we expect the provisioning to be lower than the existing book.
Kunal Shah
Yeah. So maybe if you can just guide through in terms of like this kind of a run rate in the provisioning, could there be like, I would say, like a broad improvement in the credit cost than what we saw in the second half. Given that you indicated, most of the areas are now showing improvement in the slippages and the credit cost trend and secured retail plus corporate and all that is not showing any kind of stress or incremental delinquencies.
Devang Gheewalla
Yeah. So, Kunal, I think we gave a view based on what we see today as of now the trends and some of the steps which we have taken to prevent any further NPA buildup. But as I think some of the sectors are still getting infected by external factors which are beyond our control. So I think, it will be very difficult to give the guidance. But as I said, the new accretion to the book is certainly slowing down in personal loans. As I said, credit card remaining more or less at the same level. And the micro credit, it continues to be slightly elevated. So very difficult to give a guidance on the credit cost going forward.
Kunal Shah
Got it. And second question is on margins. Given we are in the reported cut environment, we have taken initiatives. We have cut the savings rate now almost like 2.75 and 3.25, plus maybe some tricking has happened on the TD side. Plus, there will be flexibility to cut off the Sweep deposits as well. So firstly, maybe when you look at it on this cost of SA, which is currently at 3.79%, considering the rates which are prevailing currently at 2.75% and 3.25%, would it be fair to assume that eventually, it should settle towards 3%-odd and should give like 20 bps advantage on the cost of deposit side. And similarly, some benefit flowing in from, say the Sweep deposits. So maybe ideally, what is the kind of margin trends, which you would look forward to in FY ’26?
Devang Gheewalla
I think you have given the answer of your question itself, but you are right. I think the way we have to respond to the repo rate cut, obviously, is through the cost of deposits because that’s what the margin is all about, right? So if I look at the cost of deposits, it’s in three broad areas. One is the saving account, where traditionally, we were paying actually higher interest rate compared to our peers. Now we aligned the rate to 2.75% through cuts in the SA balances over the last 1 quarter. And, therefore, now we are at the same level as our peers. And obviously, the SA rate that cut is on the portfolio effect is there. In terms of the active money deposit, as you know…
Kunal Shah
Sorry, sir, this can come down to 3% from 3.79%, which is there currently, ideally?
Devang Gheewalla
As I said, today, after the cut rate is 3.25% over INR50 lakhs and 2.75% below INR50 lakhs. So yeah, I mean, broadly it is in that range, it can come, right?
Kunal Shah
Yeah. Got it.
Devang Gheewalla
Considering my thing on the Sweep TD, as you know, it’s a 6 months product. We offer for CA and SA we have, but actual cost of the Sweep TD is somewhere around 5.5% against the headline rate of 7%, indicating that the tenure of the deposit is much lower than 6%. So the repricing part of that also will become much faster. We have also rationalized the Sweep TD rates for current account to 5% with a 150-day bucket. And for the savings account, we have reduced it from 7% to 6.5%. So one is the rate reduction.
Second is, I think the repricing period, which is faster should help. On the third bucket, which is the normal term deposit, clearly, for the chosen buckets and in line with peers and the competition, we have rationalized some of the TD rates. Again, our TD maturity on a residual basis is less than one year. So the repricing also should happen over that period of time. So I guess all this combined should help us to sort of navigate and respond to the repo rate cut, which remains anyone’s guess now how many much for the repo cuts will come, how much it will come, when it will come, I guess. So that’s what the sort of answer to your questions.
Kunal Shah
Okay. Thanks, and all the best.
Operator
Thank you. The next question is from the line of Anand Swaminathan from Bank of America. Please go ahead.
Anand Swaminathan
Thank you. I have a couple of questions. One is on capital management. What according to you is the optimal capital level for Kotak, especially since loan growth has come down to 13%, 14% levels now. In kind of a two-, three-year period, where do you see CET1, and what would be the strategy to achieve it? And number two, in terms of the unsecured book and credit card, it’s good to see that things have settled down and starting to improve. But just as a diagnosis of what happened over the last 12, 18 months, clearly, a couple of bigger peers in the market, their credit card and unsecured performance has been meaningfully better. And what do you think was the delta for Kotak in the cycle? And would it change anything that you do in the coming cycle in those two segments? In terms of risk or customer selection or anything like that? That’s it from me. Thank you.
Ashok Vaswani
Thank you. So let me deal with that question, Anand. First on the capital management, look, there is no doubt we have excess capital. And the way we think about capital is that really it provides a fortress balance sheet. And when I say fortress balance sheet, it really means that it gives us the ability to kind of deal with any kind of downturns as well as gives us the ability to take advantage of any opportunities that come for growth. So we are — we have always stated that M&A and inorganic activities would be an important part of our strategy, and we continue to look at every single opportunity that comes along.
Now just because we have capital, we’re not just going to kind of spend it and waste it, but obviously, any kind of acquisition opportunity comes up, has to make sense from a strategic perspective as well as from a financial perspective. So keep that on the side. As and when that happens, we’ll be ready to do that, and we’ve got a watchful eye. Two is what are we doing with this excess capital, and how we are dealing with it. The key thing is, we run our businesses. Devang allocates our businesses at about 15% capital. And he then has excess capital.
The way we utilize or invest our excess capital, first call is the business, second call is our alternative asset businesses, which historically have given us a very, very good return in the high teens post-tax. Now this — you don’t see the benefits of that on a quarter-on-quarter-on-quarter basis and comes in lumpy, but still the returns are there.
Three, we like investments in financial market infrastructure. So things like Kaypay and MCX and other such opportunities, we’re constantly on the watch look to say, do other such opportunities because we think long term that will provide us great kind of growth opportunities. Now, apart from these three, we are looking at other areas where this capital can generate a return, it would not generate a return as much as our businesses do, but if we can generate a return as close to our businesses, then it is a nirvana situation, where we have the opportunity to take advantage of any opportunities, manage any downsides, yet get a decent kind of return.
So that’s how we think about capital management. And I understand that this is lumpy and opportunistic and doesn’t happen in a clean row, but that’s how we kind of think about it. Moving to your second question on unsecured book. Yeah, the overall book — unsecured book fell from about 12.7% of our total advances to about 10.5% of total advances. Our desired state, obviously not in one year, but over a period of time is to get to mid-teens, and we will continue to grow that. We like the credit card business a lot, and we are redoing our entire credit card business, rethinking of the strategy and aligning it with a broader strategy of getting the right product for the right customer.
So that’s work in progress. But like I was talking about Solitaire, we’ve just come up with a new credit card for that fully affluent customer, which will really meet the needs of that kind of customer as we kind of go ahead. There are important learnings from what we’ve been through. One, we’ve got — see, we’ve got to recognize that at its core, Kotak is an SME bank, right? That’s where our strengths are. And that’s how we’ve got to kind of think about it, and how we kind of cater to that.
Number two, right, we’ve always been very conservative, and I like that on the corporate side of the house. How do we take it and tweak that on the retail side of the house and get a better balance of risk reward. We went out and we did a whole bunch of tests and experiments. And frankly, we could have put a kind of — put that into a box or limited the exposure that kind of came out of the tech/experimental portfolio. We recognize that we are different from our competition in the sense that we have more SME and less co-op kind of bank, and therefore, what are we going to do about that. So I think we’ve learned some very, very, very important lessons from this painful episode, and we are committed not to making those mistakes again.
Anand Swaminathan
Thanks. That’s very useful. Just kind of if you can elaborate a bit more on the lessons in terms of was it customer selection, was it some processors collection and what would change in the current cycle, that would be useful.
Ashok Vaswani
Sorry, I didn’t get the question.
Devang Gheewalla
The quality of onboarding. What was the issue on the — no, no. What is the — okay. So the lessons and you compared us with some of the large peers as well. I think one, as Ashok was mentioning is, we had consciously tried to do certain test underwriting in order to be able to cross-sell more to our existing base. In hindsight, probably that those percentages, the exposure to that segment going forward, we’ll keep much smaller such that the risk is contained. Number two, what we’ve — and this is something we have already taken action well before the embargo itself, but we will continue with that.
The second is smaller ticket size credit card limits, those have larger risk. That, again, we had addressed before the embargo itself, but we will continue with that as well. So our Solitaire proposition is an affluent proposition. That will help us to get affluent clients who inherently carry lower risk as well. Compared to — you are then comparing the portfolio with larger peers. The — as you are aware, our credit card portfolio is — has been traditionally a much smaller portfolio, and we had gone really slow during the COVID period. Therefore — and you probably are aware that vintage books performed significantly better.
So our portfolios are newer books, which have been built more recently post the embargo. And, therefore, those will naturally carry higher delinquencies. So that is a fact, not because of our post-COVID book, which would, therefore, it doesn’t reflect underwriting. It just reflects the nature of mix of the book and the fact that our credit card portfolio is much newer. But the policy we’ve written, it was pre-embargo itself, and what we’ve rolled out post embargo is a much tighter policy on many of these factors, which — with much lower target loss rates.
Anand Swaminathan
Thanks a lot. That’s very useful, sir. Thank you.
Operator
Thank you. The next question is from the line of Param from Investec. Please go ahead.
Param Subramanian
Yeah, hi, good evening. Thanks for taking my question. My first question is on the quarter P&L on the NII line. So in the PPT, we called out that we see the margin expansion quarter-on-quarter. There is also a loan book growth quarter-on-quarter. So 1% Q-o-Q NII growth doesn’t tally with that. So can you take us through the math for that? That’s my first question.
Devang Gheewalla
Yeah, no. So I think — so last year, if you see the NII of last year included the interest on income tax refund, which was there almost INR142 crores. If you refer to our slide on number nine it gives you, that is one of the one-off items which was where it was part of NII. So if you actually sort of remove that, then you should look at the impact of the growth asset.
Param Subramanian
Devang, I meant — I mean quarter-on-quarter. I mean we are showing that there is a 4 basis-point improvement in margin. And that is a Q-o-Q loan growth of 3%. Our NII growth is only 1%, right? Yeah.
Devang Gheewalla
Sure. So I was explaining the Y-o-Y part. The Q-on-Q count, what happens is that in March, there is always the effect of the number of days because what happens is that you are — because of March 31 and February being a lesser number of days, this gives you the kicker in terms of the NIM improvement, which is there marginally. But that does not create this issue every quarter and last quarter of the month.
Param Subramanian
Yeah. Okay. So just to be clear, so you accrue the NII over a lesser number of days, so it affects your absolute NII versus the last quarter. My understanding is correct.
Devang Gheewalla
That’s okay.
Param Subramanian
Okay. Perfect. This is really helpful. Secondly, on your CASA ratio or rather on average SA, right? So we have taken some rate actions on SA, and our average SA balances are like flat Y-o-Y. And I think if I’m not wrong, I heard you say that we are open to taking more actions. So how should one look at that, let’s say, overall CASA growth outlook for next year as well?
Shanti Ekambaram
So actually, I had talked about that when I said that this quarter, if you see quarter-on-quarter, we’ve seen our regular fixed rate SA grow by 2% quarter-on-quarter. And we have also said that from an average accretion basis on the customer acquisition side, we have seen in the last two quarters, a much better average accretion given the focus, the increase in acquisition of affluent customers. So we’re very clear. CASA focused both CA and SA. SA, the core banking customers continue to grow SA. In fact, balances up to INR10 lakhs have continued to grow quite robustly. The affluent customers, accretion is better, but you will see some amount into investments. So it’s a combination of CA and SA and active money, so we hope to focus on our CASA balances.
Param Subramanian
Okay. Just to follow up on that, Shanti. So in the past, when liquidity has been very accommodative, we’ve also seen CASA ratios go all the way up to 60%. So I’m not asking for a guidance per se, but do you think CASA ratio as such has legs to go up from where you are, despite taking SA rate cuts from here?
Shanti Ekambaram
Yeah. So one thing. One is on a quarter-on-quarter, with improved CASA ratio, probably most banks have, that’s good. But when you talked about the 60%, you must realize at that point in time, we had stopped taking term deposits. Because of during COVID, even lending had been everybody back in the hatches. So I think as you expand your balance sheet and you sort of look at ratios, CASA ratios will show very different growth Suffice to say, we will grow our CASA, but ratios will depend upon your growth in balance sheet and the mix of the TD base. What you should look at is cost of fund and whether you’re competitive on the cost of fund. I think if you see that even in this quarter, we have been very competitive on the cost of funds and tax, what is actually a credit.
Ashok Vaswani
And just to add to that, Shanti, I think linking the asset — the CASA growth to rate may not be really the right thing to do because the elasticity of pricing at the lower end of SA, right, is very, very, very low. And that has been demonstrated over the last four or five months when we initially took down the rate, right? So I will not equate those two.
Param Subramanian
Perfect. Thanks, Ashok and Shanti. Just one more question, if I may. Any number around growth that you — you’ve called out average advances growth of 18% for this year. So any number around growth that you want to call-out for next year in terms of guidance? That’s it.
Ashok Vaswani
So true to our philosophy, we’ve always said we will grow assets somewhere between 1.5 times to 2 times nominal GDP growth. Frankly, that’s a risk appetite statement, right? If the economy is — if we’re growing assets faster than 2 times normal GDP growth, one has to ask the question, are you taking on too much risk? And if you’re growing lower than 1.5 times nominal GDP growth, when you asked your question, are you leaving money on the table, right? And so we — and because this is not about a day in the sun or a quarter in the sun. It’s all about a sustainable franchise, which is really something our customers at buyer. And therefore, we target somewhere between 1.5 times to 2 times normal GDP growth. That will continue into fiscal year 2026 as well.
Param Subramanian
Sure. Thank you. Thank you, and all the best.
Operator
Thank you. The next question is from the line of Piran Engineer from CLSA. Please go-ahead.
Piran Engineer
Yeah, hi, team, congrats on the quarter. Actually, most of my questions are just follow-ups on previous questions. Firstly, for what Kunal asked about cost of SA deposits, from the 3.79%, do we assume it goes down to 3%, or do we just assume it goes down 25 bps quarter over quarter?
Devang Gheewalla
So hi, Piran. I think 3.79% includes, besides the fixed rates SA, also the floating rate SA cost. So while we have taken actions on the fixed rate SA to reduce the rates to 2.75% and 3.25%, the floating rate SA rate remains as of now, but I think it all depends upon what the balance of that in the SA, which will remain. So when I answered the question, it was more from a fixed rate SA prospective, that it will be around 3%. The floating rate SA will — may be based on the MCLR rate and as well as the quantum of such deposits as we go — my book, sorry.
Piran Engineer
Understood. Okay. Okay. That’s pretty clear now. Secondly, again, just following up on Param’s question, the 1% NII growth, but NIM being up, and now we get that there is this number of days effect other banks have also mentioned it. But if I look last year, right, our NIM was up 6 bps Q-o-Q, but we still had a good 5%, 6% NII growth Q-o-Q with about 5%, 6% advances growth of customer assets growth. So I’m just trying to get the disconnect here.
Devang Gheewalla
So I think that is what, Piran, I was saying when I was explaining that last year — last quarter, and if you refer to Page 9 of our investor presentation, it included almost the income tax interest on refund of INR142 crores as well as the tax credit of INR200 crores, right? So in the NII, you had INR142 crores. Again, just to take you, interest on income tax refund is not considered for the NIM calculation because it is on the earning assets. But when you look at the NII, it includes the INR142 crores of that.
Piran Engineer
Okay, versus just a INR24 crore number, which is small?
Devang Gheewalla
That’s correct. That’s correct.
Piran Engineer
Okay. And just lastly, on the SA thing, right? Now even a few quarters back, we mentioned that there is a new, let’s say, revamped push for SA. We’ll have a macro marketing strategy in the top 25 cities. We’ll focus on specific customer segments, the affluent customer, etc., we launched bundled products. But even if I — now obviously, maybe one or two quarters might not be the perfect time period, but it’s been now six, seven quarters where the SA book is kind of stuck at this INR1.2 lakh crores, INR1.3 lakh crores. So really, what year are we missing? Is it just simply that competition has heated up from private banks, PSU banks. Is it the fact that we are over-indexed to wealth customers, and we will continue to put money in TD, whatever we offer, what is — like how do we get comfort that SA starts picking up because otherwise the performance of the bank has been good. Just that this SA has been one sort of tough point out here for a few quarters, not just one quarter.
Devang Gheewalla
So look, I mean, if you do an analysis, right, in the first three quarters of the year, liquidity was very tight, and you compare it to every other bank on the street, right? Pretty much, we are there in thereabout, okay, on SA, right? This, despite, our 811 proposition being put on hold because of the embargo, okay? So that’s one point.
The second point is, let’s look with our active money kind of proposition, a lot of money gets swept, and you can see active money grew very handsomely year-on-year, I think 47% year-on-year growth this year and an equally amazing number last year. And that active money dampens the SA kind of growth. So the real — I think Shanti said this, the real way to look at this is our cost of funds. And you will see our cost of funds still is about the best there is in the industry because of the way we manage CA, SA, active money and TD.
Piran Engineer
Yeah. Got it. Okay. That’s useful. And just lastly, if I may squeeze in this jump in opex Q-o-Q, that’s just more seasonally due to PSL purchases, etc. — PSLC purchases, or is there anything else to get into?
Ashok Vaswani
Yeah, there is PSL purchases. You’re right. Having said that, look, once we got out of the embargo, it was important that we came out strongly, and we came out strongly with the brand campaign as well as we started the engines on credit card acquisition and 811 customer acquisition. Like I said, again, this is not about a quarter — a day in the sun or a quarter in the sun, we are trying to build a solid franchise. And, therefore, we are not trying — it could have been so easy not to spend on the brand campaign and improve the expense, but I really want to build a long-term, sustainable franchise for our shareholders. And that what we’re going to do as we go about it.
Devang?
Devang Gheewalla
Piran, just to add to what Ashok is saying, in last quarter, what has also happened because of the G-SEC rate falling, the actuarial provisioning for the pensions fund liability has to go up because of that. And I think the second part is because our share price is doing well, some of the share price based incentive provisions are on SA also got a bit higher compared to the earlier quarters. So besides the one-off costs on the brand campaign, which is the Hausla Hai Toh Ho Jayega, and some of these payroll-related costs, the cost has been higher in the last quarter.
Piran Engineer
Okay. Okay. This explains it perfectly. Thank you so much and wish you all the best.
Ashok Vaswani
Thank you.
Operator
Thank you. Ladies and gentlemen, that was the last question for today.
I now hand the conference over to Mr. Ashok for closing comments.
Ashok Vaswani
So, guys, thanks a lot. I once again sincerely apologize for starting late. We’ve had — we’ve had quite a roller-coaster FY ’25, but I think a lot of the stuff is behind us. We are committed to driving our strategy and executing on our mission to move from product centricity to customer-centricity and we are really looking forward to FY ’26 and giving you a regular update every 90 days or so.
So once again, thank you so much and see you at the end of the next quarter. But I look forward. Thank you.
Operator
[Operator Closing Remarks]