Synopsis: The Reserve Bank of India (RBI) has lifted restrictions on Kotak Mahindra Bank (KMB), allowing the resumption of digital customer onboarding and issuance of new credit cards. Analysts anticipate a cautious and gradual recovery in KMB's business growth, profitability, and market share, emphasizing a balance between expansion and risk management.
In April 2024, the Reserve Bank of India imposed restrictions on Kotak Mahindra Bank, halting the onboarding of new customers through digital channels and the issuance of new credit cards due to identified deficiencies in the bank's IT infrastructure.
Following comprehensive remedial measures, including the appointment of external auditors and enhancements to IT systems, the RBI lifted these restrictions on February 12, 2025.
Despite this regulatory relief, analysts project that KMB will adopt a measured approach to regain its growth momentum.
The bank's credit card segment experienced a decline during the restriction period, with the customer base decreasing from approximately 6 million to 5 million.
Market share in outstanding credit cards also fell from 5.8% to 4.6%, and assets under management (AUM) growth slowed to 2% in Q3 FY25, a significant drop from the over 40% growth observed prior to the sanctions.
Brokerage firm Motilal Oswal Financial Services forecasts a 16% compound annual growth rate (CAGR) in loans for KMB over FY25-27, highlighting the bank's healthy 10.3% year-over-year growth in the personal loan segment.
The lifting of curbs is expected to enhance consumer banking activities, thereby supporting lending yields and margins.
However, caution prevails among analysts regarding the bank's expansion strategy. Emkay Global points out that other banks, such as HDFC Bank, have faced challenges in recovering lost credit card market share following similar restrictions.
Given ongoing asset quality concerns in the industry, KMB is anticipated to prioritize prudent growth over aggressive expansion.
With the resumption of digital onboarding, KMB plans to reactivate its 'Kotak 811' mobile banking platform, a significant tool for customer acquisition.
Nonetheless, Emkay Global notes that customers acquired through this channel often maintain lower savings account balances and may take longer to contribute meaningfully to the bank's profitability.
To bolster retail deposit growth and reduce reliance on higher savings account interest rates, the bank is expected to strengthen its branch network.
Conclusion:
The lifting of RBI's restrictions marks a positive turning point for Kotak Mahindra Bank.
While the bank is poised for recovery, the path forward is expected to be gradual and measured.
By focusing on balancing expansion with risk management, KMB aims to rebuild its market share and enhance profitability, ensuring sustainable growth in the evolving banking landscape.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
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