Over the past few years, Kotak Mahindra Bank has been rapidly expanding its credit card business and gaining a sizable user base because to its 811 digital approach.

News From Business World : Following the RBI’s prohibition against the private bank accepting new clients through its online and mobile banking channels, Kotak Mahindra Bank Ltd. suffered a sharp decline in its shares, which fell more than 10% during trading on Thursday. Additionally, the regulator forbade Kotak Mahindra Bank from issuing new credit cards, which precipitated a precipitous decline in the counter.
Over the past few years, Kotak Mahindra Bank has been rapidly expanding its credit card business and gaining a sizable user base because to its 811 digital approach. In terms of the quantity of cards issued, Kotak Mahindra Bank holds a 5.8% market share in the credit card industry. It holds a 4% market share in terms of spending.

Kotak Mahindra Bank shares dropped 10% as a result of the event, reaching a low of Rs 1,658.75. As a result, the stock has decreased by 13% for 2024 thus far.
Emkay Global said that the regulatory overhang may cause any stock rerating to be delayed and lowered its rating on Kotak Mahindra Bank to “Reduce” and its target price to Rs 1,750 from Rs 1,950. According to YES Securities, Kotak Mahindra Bank has stated that it intends to raise the share of unsecured retail loans to the mid-teens over the next several years, and this includes the issuing of additional credit cards.

“A greater mix of digital sourcing and an emphasis on unsecured products have helped Kotak Mahindra Bank report stronger growth in retail products.” High cross-selling and lower costs associated with digital sourcing are boosting overall profitability, and the bank has previously indicated to further raise the proportion of unsecured products as long as the underlying asset quality is under control, according to Motilal Oswal.
According to the brokerage, the RBI restriction will negatively affect overall margins and profitability as well as disrupt the retail product’s growth trajectory.

Furthermore, given that KMB has long been regarded as one of the best banks in terms of risk management and general governance procedures, the regulator’s reference of the IT shortcomings over the previous few years is concerning. With a lowered target price of Rs 1,900, we maintain our Neutral rating on the company,” the statement stated.

According to Motilal Oswal, the regulatory limits are a result of worries raised by the RBI’s IT inspection of the bank for the years 2022 and 2023, as well as Kotak Mahindra Bank’s ongoing inability to adequately and promptly resolve these concerns.

95% of new PLs sold by volume and 100% of new credit cards sold by Kotak were completed digitally. According to Motilal Oswal, this led to a rise in the percentage of unsecured loans to 11.6% in Q3FY24.
Earlier in the current fiscal year, the Kotak management had advised raising the percentage of unsecured loans to the mid-teens. The RBI noted that the volume of digital and credit card transactions made by the bank has increased so quickly that it is placing additional strain on its IT infrastructure.

Following the completion of a thorough external audit, which the bank will commission with the RBI’s prior approval, and the correction of any shortcomings that the external audit may have identified as well as the observations made in the RBI Inspection, the current restrictions will be reviewed.

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