Kotak Mahindra Bank has been actively expanding its credit card business in recent years, attracting a substantial number of customers through its 811 digital strategy.
Kotak Mahindra Bank had been aggressively expanding its credit card business and attracting a substantial customer base through its 811 digital strategy in recent years. The bank held a 5.8% market share in terms of the number of credit cards and a 4% share in terms of spending.
As a consequence of the RBI’s actions, Kotak Mahindra Bank’s shares fell by 10% to reach a low of Rs 1,658.75. This decline brings the stock’s total decrease for 2024 to 13% thus far. Analysts at Emkay Global downgraded their rating on the bank to ‘Reduce’ and revised their target price downward to Rs 1,750 from Rs 1,950, citing potential delays in stock revaluation due to regulatory concerns.
YES Securities highlighted that Kotak Mahindra Bank’s strategy to increase its share of unsecured retail to the mid-teens through incremental credit card issuance could be hampered by the regulatory restrictions.
Motilal Oswal expressed concerns over the impact of the RBI ban on the bank’s retail product growth trajectory, overall margins, and profitability. They also noted ongoing IT deficiencies highlighted by the regulator, which could affect the bank’s risk management and governance practices.
The regulatory restrictions stem from the RBI’s IT examination of the bank for the years 2022 and 2023, during which Kotak Mahindra Bank failed to adequately address concerns in a timely manner.
Kotak Mahindra Bank had been focusing heavily on digital transactions, with 99% of new credit cards and 95% of new personal loans being sold digitally. This emphasis on digital sales contributed to an increase in the share of unsecured loans to 11.6% in Q3FY24.
The RBI has stated that the restrictions will be reviewed once the bank commissions a comprehensive external audit, approved by the RBI, and addresses all deficiencies identified in the audit as well as the observations from the RBI inspection.
Disclaimer: This information is provided for informational purposes only and should not be considered investment advice. Readers are encouraged to consult with a qualified financial advisor before taking any investment decisions.