Kotak Mahindra Bank Ltd shares saw a steep reaction from investors following the RBI's decision to bar the private bank from onboarding new customers via online or mobile banking channels or issuing new credit cards. The move came as Kotk Mahindra bank could not address supervisory concerns emerging from the regulator’s IT examination for FY22/FY23 and from the frequent tech-outages, the latest being on April 15, 2024.
Emkay Global noted that similar punitive action was taken in case the of HDFC Bank. The RBI restrictions will be reviewed upon completion of external audit and corrective action plan to RBI’s satisfaction, which Emkay says takes about 6-12 months.
"We believe such restrictions should impact business growth, including KMB’s already dwindling CASA ratio (down 13 per cent from its peak to 48 per cent) and its new card acquisition; this will lead to earnings being hit in the medium term. Additionally, the regulatory overhang would delay any hope of a re-rating post the recent management change," Emkay said. This brokerage revised its rating for Kotak Mahindra Bank to 'Reduce' from 'Add' with a fresh target price of Rs 1,750 pre share from Rs 1,950 earlier.
Shivaji Thapliyal, Head of Research and Lead Analyst at YES Securities said the RBI ban implies that all new-to-bank customers which are being sold any banking product online could no longer be sold these products, till the ban is revoked.
Kotak's share of digital sourcing stood at 95 per cent for new personal loans (volumes), 99 per cent for new credit cards (count) 79 per cent for new business loans disbursed by volume and 90 per cent for new investment accounts opened.
Thapliyal said the ban on incremental credit card issuance has reasonable significance since it is part of Kotak Mahindra Bank’s stated strategy to increase share of unsecured retail to mid-teens over the next few years from a little over 10 per cent currently.
"Credit card book, per se, is about 4 per cent of KMB loan book. Due to the ban, KMB will be stopped in its tracks from normalizing its business model from being underweight on unsecured retail. We do recall that, when HDFC Bank had faced a similar ban, it did end up losing market share in credit card spends over a period of time," the YES Securities analyst said.
"The other aspect of banning onboarding through online and mobile banking channels would entail the 811 accounts, which, over a period of time, have contributed materially to liability account addition, albeit of limited account balance value. Nevertheless, the 811 accounts have the potential to see balance accretion at some point but, presently, such accounts cannot be added," he said.
Kotak Mahindra Bank has a credit card market share of 5.8 per cent -- in terms of number of cards. It has a spending market share of 4 per cent. "Kotak Mahindra Bank has been reporting stronger growth in retail products, aided by a higher mix of digital sourcing and a thrust on unsecured products. The bank has earlier guided to further increase the mix of unsecured products as the underlying asset quality remains under control, while high cross-selling and reduced costs of digital sourcing are aiding overall profitability," Motilal Oswal said.
This brokerage suggested revised target price of Rs 1,900 for Kotak Bank.