Kotak Mahindra Bank was aggressively growing its credit card business over the past few years, while it also amassed significant number of customers on the back of its 811 digital strategy.
Kotak Mahindra Bank Ltd saw its shares took a beating, falling over 10 per cent in Thursday's trade after the RBI prohibited the private bank from onboarding new customers through its online and mobile banking channels. The regulator also barred Kotak Mahindra Bank from issuing fresh credit cards, triggering a sharp fall on the counter.
Kotak Mahindra Bank was aggressively growing its credit card business over the past few years, while it also amassed significant number of customers on the back of its 811 digital strategy. 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.
Following the development, Kotak Mahindra Bank shares fell 10 per cent to hit a low of Rs 1,658.75. With this, the stock is down 13 per cent for 2024 so far.
Emkay Global cut its rating on Kotak Mahindra Bank to 'Reduce' and lowred its target price to Rs 1,750 from Rs 1,950) earlier, saying the regulatory overhang may delay any stock rerating. YES Securities noted that incremental credit card issuance was part of Kotak Mahindra Bank’s stated strategy to increase share of unsecured retail to mid-teens over the next few years.
Kotak Mahindra Bank Financials
INCOME
| Period | Mar 2023 | Mar 2022 | Mar 2021 | Mar 2020 |
| Net Interest Income | 27,739.93 | 22,187.10 | 19,853.28 | 17,573.48 |
| Loan Loss Provision | 508.45 | 1,222.72 | 2,062.31 | 1,566.34 |
| Non- Interest Income Bank | 25,990.97 | 25,310.61 | 23,587.68 | 16,891.58 |
| Non- Interest Expense Bank | -33,576.26 | -30,326.69 | -28,210.31 | -21,476.91 |
| Net Income Before Taxes | 19,646.18 | 15,948.30 | 13,168.34 | 11,421.80 |
| Net Income | 14,925.01 | 12,089.39 | 9,990.20 | 8,593.36 |
| Diluted Normalized EPS | 74.39 | 57.39 | 53.05 | 48.35 |
"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.
The brokerage said the RBI ban will disturb the growth trajectory of retail products and adversely impact overall margins and profitability.
"Besides, the IT deficiencies that have continued over the past couple of years, as mentioned by the regulator, do pose a concern, as KMB has been one of the most revered banks when it comes to risk management and overall governance practices. We reiterate our Neutral rating on the stock with a revised target price of Rs 1,900," it said.
BALANCE SHEET
| Period | Mar 2023 | Mar 2022 | Mar 2021 | Mar 2020 |
| Total Assets | 6,20,429.73 | 5,46,497.91 | 4,78,854.22 | 4,43,172.71 |
| Total Liabilities | 5,08,115.34 | 4,49,332.57 | 3,94,015.61 | 3,76,035.73 |
| Total Equity | 1,12,314.40 | 97,165.34 | 84,838.60 | 67,136.98 |
| Tangible Book Valueper Share Common Eq | 556.82 | 481.63 | 423.16 | 345.77 |
Motilal Oswal noted that the regulatory restrictions are driven by concerns arising out of the RBI’s IT examination of the bank for the years 2022 and 2023 and the continued failure on part of Kotak Mahindra Bank to address the concerns in a comprehensive and timely manner.
Kotak's 99 per cent of new credit cards sold and 95% of new PLs sold by volume were done digitally. As a result, the share of unsecured loans increased to 11.6 per cent in Q3FY24, Motilal Oswal suggested.
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The Kotak management had previously guided increasing the mix of unsecured loans to mid-teens over the current fiscal. The RBI sighted that such rapid growth in the volume of the bank’s digital/credit card transactions has put further load on the IT systems.
CASHFLOW
| Period | Mar 2023 | Mar 2022 | Mar 2021 | Mar 2020 |
| Cashfrom Operating Activities | -1,242.43 | 8,302.85 | 4,881.13 | 46,618.83 |
| Cashfrom Investing Activities | -10,550.18 | -10,969.26 | -11,116.14 | -13,198.87 |
| Cashfrom Financing Activities | 1,883.00 | 7,548.91 | -10,072.05 | -735.00 |
| Net Changein Cash | -9,740.14 | 4,948.86 | -16,363.23 | 32,815.39 |
The restrictions now being imposed will be reviewed upon completion of a comprehensive external audit to be commissioned by the bank with the prior approval of the RBI, and remediation of all deficiencies that may be pointed out in the external audit as well as the observations contained in the RBI Inspection.
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Kotak Mahindra Bank Company profile
Industry: Regional Banks
- ISIN: INE237A01028
- BSE Code: 500247
- NSE Code: KOTAKBANK
Kotak Mahindra Bank Limited (the Bank) is a Non-Banking Financial company. The Company is primarily engaged in financing of passenger cars and multi-utility vehicles for retail customers and inventory and term funding to car dealers. The Company operates through three segments: Vehicle Financing, Other Lending activities, and Treasury and Investment activities.
The Vehicle Financing segment is engaged in the retail vehicle finance, wholesale dealer finance and consumer durable finance. The Other Lending activities segment is engaged in the financing against securities, securitization, debenture investment / lending in commercial real estate and other loans / fee-based services. The Treasury and Investment activities segment is engaged in the proprietary trading in shares and strategic investments. Its products include Home Loan, Personal Loan, Savings Account, National Pension Scheme (NPS), Business Loan, Life Insurance, Fixed Deposit, Recurring Deposit, Loan against property.
KOTAK MAHINDRA BANK MANAGEMENT
- Jaimin Bhatt: President and Group Chief Financial Officer
- Ashok Vaswani: Chief Executive Officer, Managing Director, Executive Director
- Avan Doomasia: Senior Executive Vice President, Company Secretary
- Himanshu Vasa: Chief Compliance Officer
- Shanti Ekambaram: Whole Time Director
- K Manian: Whole Time Director
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