The Reserve Bank of India (RBI) has lifted the restrictions it placed on Kotak Mahindra Bank (KMB) Ltd regarding onboarding new customers through its online and mobile banking channels and issuing new credit cards. This should aid its net interest margin (NIM) and fee income growth going ahead, Nomura India said.
The resumption of digital onboarding of customers may aid in acquisition of savings accounts and cross-sell of products. KMB appears well-placed to push the pedal on growth in the credit card segment, following the removal of restrictions, Nomura said.
Kotak Mahindra Bank shares advanced 2.25 per cent to hit a high of Rs 1,986.95 in early BSE trade. In the pre-open trade, the scrip was up 10 per cent at Rs 2,137.60.
The central bank had placed the restrictions on KMB on April 24, 2024, following which the private lender implemented corrective measures and submitted compliance reports to the RBI. The bank also commissioned an external audit, with prior RBI approval, to validate the actions.
"With the removal of these restrictions, we expect KMB to push for growth in credit card segment, which should provide support to NIMs and fee income. Customer acquisition should also gather pace, driven by resumption of digital onboarding. KMB (core-bank) trades at 1.9x FY26F BVPS, and in the past month, the stock (up 12 per cent) has outperformed the benchmark Bank Nifty (up 3 per cent). We maintain our Buy rating and target of Rs 2,110," Nomura India said.
The foreign brokerage noted that the growth in KMB’s credit cards segment had moderated significantly, following the restrictions imposed on the bank. Credit cards (loan outstanding) decreased 2.7 per cent in FYTD25 to Rs 14,100 crore as of Q3FY24), and now accounts for 3.4 per cent of overall loans (against 3.9 per cent in Q4FY24). Further, as of December 2024, KMB has 50 lakh credit cards outstanding against 60 lakh in April 2024.
The market share on cards in force has moderated to 4.6 per cent aginst 5.9 per cent in April 2024).
"We believe the removal of the restrictions come at an opportune time, with stress in the credit cards segment plateauing (as per management). Hence, we believe the bank is well placed to push the pedal on growth in the credit card segment. This should also provide some support to margins amid a rate cut cycle and boost to fee income," Nomura said.
The foreign brokerage said digital customer acquisition and servicing has been at the forefront of KMB’s strategy. KMB’s FY24 annual report highlighted that 72 per cent of new savings accounts were acquired by Kotak 811 (digital savings account) and over 50 per cent of credit cards, unsecured loans, insurance policies (non-life) and recurring deposits were cross-sold to Kotak 811 customers.
"However, the value contribution from digital native customers (Kotak 811) is relatively low. KMB’s segment disclosures show that the contribution of end-to-end digital loans/deposits to its business is very limited. This is true for the SA contribution from Kotak 811 as well," Nomura said.
The brokerage said the resumption of digital onboarding of customers to aid in acquisition of savings accounts and cross-sell of products.