Kotak Bank has received a significant GST demand order from Rajasthan tax authorities, totaling ₹2.33 crores. The bank disclosed this development through a regulatory filing under SEBI Regulation 30 on December 31, 2025.

GST Demand Order Details

The order, dated December 29, 2025, was issued by the Deputy Commissioner of State Tax, Business Audit Wing, Rajasthan. The demand comprises multiple components under the Rajasthan Goods and Services Tax Act, 2017 and Central Goods and Services Act, 2017.

Background and Timeline

The GST demand has arisen due to disallowance of input tax credit that the bank had availed during the financial year 2021-22. The bank's Company Secretary received the order information on December 31, 2025, at 3:21 p.m. IST, and promptly made the regulatory disclosure.

Bank's Response Strategy

Kotak Mahindra Bank Limited has expressed confidence in its position regarding this matter. The bank stated that it believes it has adequate grounds to support its stance and intends to file an appeal against the order under applicable laws. The bank has indicated that the financial impact would be limited to the amount of levy payable under the aforementioned order.

Regulatory Compliance

The bank has fulfilled its disclosure obligations by making this information available on its official website and filing the necessary intimation with stock exchanges. This transparency ensures that investors and stakeholders remain informed about material developments that could impact the bank's operations.

Kotak bank has delivered disappointing returns to investors over the past five years, with the stock gaining less than 9% compared to the Nifty 50's 86% return and Nifty Next 50's 110% gain since December 2020. This translates to an annual return of under 2% for the bank's shareholders, while the stock has remained range-bound as peers and broader markets moved to higher levels. However, with advances growing at nearly 16% year-on-year and the bank's digital strategy gaining scale, market focus has renewed on whether the stock may finally break out of its long consolidation phase.

Strong Balance Sheet and Risk Management

Kotak Mahindra Bank has maintained a conservative approach to credit risk across multiple cycles, keeping asset quality stable while other lenders faced repeated stress from bad loans. The bank's risk metrics demonstrate this disciplined approach effectively.

This clean balance sheet allows profits to support growth rather than cover past losses. The bank's capital adequacy ratio provides substantial protection against economic stress and capacity to expand the loan book or pursue acquisitions without raising fresh equity.

Deposit Strategy and Funding Optimization

Kotak has strategically shifted its deposit mix towards a more stable retail base, reducing dependence on higher-cost deposits. The bank's CASA ratio stands at 42.3%, representing current account and savings account deposits as a share of total deposits. Chief Financial Officer Devang Gheewalla noted the bank is seeing higher average balances from retail customers.

The bank has reduced reliance on high-cost, floating-rate savings accounts while increasing fixed-rate deposits that offer stability and predictable costs. This shift supports margins when competition for deposits intensifies, positioning the bank favorably for future profitability improvements.

Digital Platform Success and Technology Leadership

Kotak's 811 digital platform has emerged as a significant competitive advantage, ranking among the most downloaded banking apps in India and placing third globally. The platform targets customers seeking digital-first loans, credit cards, and investment products, substantially reducing acquisition costs compared with traditional branch-led models.

The digital platform improves operational efficiency and scalability, allowing the bank to offer additional products such as insurance and home loans within the same ecosystem.

Margin Outlook and Recovery Timeline

Net interest margin has eased to 4.54%, with management attributing the decline to lower interest rates. However, the bank has begun repricing deposits, and as most term deposits mature within nine to 12 months, lower funding costs are expected to reflect in earnings by late 2025 or early 2026. During this transition, higher-cost deposits are being replaced with lower-cost funding, which could support profitability once the cycle completes.

Diversified Revenue Streams

Kotak's non-bank businesses contribute significantly to earnings diversity. Kotak Mutual Fund reported 31% year-on-year profit growth, while Kotak Institutional Equities has ranked first in the domestic market for three consecutive years. The alternative assets arm, KAAML, manages approximately $11 billion in investments, providing substantial income diversification alongside core banking operations.

Valuation and Market Positioning

After five years of limited share price movement, the bank's valuation metrics suggest potential undervaluation. Book value per share stands at ₹844, representing 14% year-on-year growth. The stock trades at a trailing price-to-book multiple of 2.6 times, significantly below its 10-year average of 4.1 times.

Analysts tracking the bank expect adjusted earnings per share to grow approximately 14% annually over the next three years, with consensus estimates suggesting the stock trades at an 11% discount as of December 2025.