Kotak Mahindra Bank's loan, deposit growth may be impacted after RBI curbs

Kotak Mahindra Bank’s loan and deposit growth are likely to be affected after the Reserve Bank of India (RBI) asked the private-sector lender not to take on board new customers through the bank’s online and mobile banking channels and not to issue any new credit cards, according to analysts.

The bank’s share price fell 10.85 per cent on Thursday to close the day at Rs 1,643 on the BSE.

The RBI’s action came after market hours on Wednesday.

“We believe such restrictions should impact business growth, including KMB’s (Kotak Mahindra Bank’s) dwindling CASA (current and savings account deposit) ratio and its new card acquisition; this will lead to earnings being hit in the medium term,” broking firm Emkay Global said in a note.

Emkay said the lender’s credit card spend grew 34 per cent year-on-year (Y-o-Y) while cards in force increased 21 per cent Y-o-Y.

The regulator put restrictions on the bank, citing gaps in the information-technology systems the lender supposedly failed to address.

There were frequent outages in the bank’s core banking system and online channels in the past two years, which inconvenienced customers, the regulator said.

According to a Macquarie report, a good portion of the assets and liabilities are sourced digitally by the bank.

"A lot of savings accounts opened are through KMB’s 811 digital channel.

"On the asset side, a majority of sourcing of unsecured products is done digitally.

"These segments have grown at 40 per cent Y-o-Y (in the first nine months of FY24) vs overall growth of 18 per cent Y-o-Y,” Macquarie said in its report, indicating the lender’s dependence on digital channels.

“On the liability front, the bulk of FDs (fixed deposits) and RDs (recurring deposits) are sourced digitally.

Thus, ceasing on-boarding of new customers could affect business growth,” Macquarie added.

Analysts have said the lender had opened fewer branches, the pace of which may have to increase now.

“Pace of branch expansion also needs to accelerate,” analysts at Citi said in a report.

The bank opened 89 branches in the first nine months of FY24 and 80 in FY23, according to Citi.

The RBI said the bank could continue to provide service to its existing customers, including its credit card customers.

The bank will also be able to add customers through its branches.

The bank has a market share of 5.8 per cent in terms of cards in force and 4 per cent in terms of spend, according to broking firm Motilal Oswal Securities.

“About 99 per cent of new credit cards sold and 95 per cent of new PLs (personal loans) sold by volume were done digitally.

"As a result, the share of unsecured loans increased to 11.6 per cent in Q3'FY24.

"Management had previously guided increasing the mix of unsecured loans to mid-teens over the current fiscal … The RBI ban will thus disturb the growth trajectory of retail products and adversely impact overall margins and profitability,” Motilal Oswal Securities said.

According to CLSA, the profit impact is likely to be modest unless the ban stays for long.

One of the key aspects that will be monitored by the analyst community is the duration of the ban.

(Disclaimer: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltd)