Akash SinghKotak Mahindra Bank’s shares dropped by 10%. This happened because the RBI stopped the bank from getting new customers online. This also stopped them from giving new credit cards.
Kotak Mahindra Bank was growing its credit card business and got many customers using its digital strategy. Because of this, their shares fell to Rs 1,658.75. Overall, their stock is down by 13% in 2024.
Emkay Global downgraded Kotak Mahindra Bank to ‘Reduce’ and lowered its target price to Rs 1,750.
YES Securities highlighted Kotak Mahindra Bank’s strategy to increase unsecured retail share with incremental credit card issuance.
Motilal Oswal mentioned Kotak Mahindra Bank’s robust growth in retail products, driven by digital sourcing and unsecured products.
The bank aims to further boost unsecured products to maintain asset quality and enhance profitability.
Navigating Regulatory Scrutiny
The RBI ban will disrupt retail product growth and affect Kotak Mahindra Bank’s margins and profitability.
Motilal Oswal expressed concerns about Kotak Mahindra Bank’s IT deficiencies and regulatory restrictions.
Kotak’s digital sales led to a rise in unsecured loans, reaching 11.6% in Q3FY24, as per Motilal Oswal.
The bank plans to increase unsecured loans despite concerns about IT systems, noted the RBI.
Additionally, Motilal Oswal underscored the significance of addressing the bank’s long-standing IT deficiencies, which have persisted over the past couple of years.
Digital Sales Dilemma
These concerns, flagged by regulatory bodies like the RBI, cast a shadow over Kotak Mahindra Bank’s risk management and governance practices, prompting Emkay Global to maintain a neutral stance on the stock with a revised target price of Rs 1,900.
Moreover, the regulatory constraints imposed on the bank stem from the RBI’s scrutiny of its IT infrastructure during the years 2022 and 2023, coupled with the bank’s purported failure to address these concerns in a comprehensive and timely manner.
During these challenges, Kotak Mahindra Bank’s digital sales have emerged as a double-edged sword, contributing to a surge in unsecured loans, which accounted for 11.6% of the bank’s portfolio in Q3FY24, according to Motilal Oswal’s analysis.
Despite the concerns surrounding the strain on its IT systems, the bank remains steadfast in its commitment to ramping up its unsecured loan offerings, a strategy that aligns with its long-term objectives, as emphasized by the RBI.
Looking ahead, the regulatory restrictions imposed on Kotak Mahindra Bank will undergo scrutiny upon the completion of a comprehensive external audit, which will be commissioned by the bank with the prior approval of the RBI.
This audit aims to address all deficiencies highlighted during the RBI’s inspection and provide a roadmap for remediation.
