Reserve Bank of India Lifts Credit Card Ban on Kotak Mahindra Bank
In a recent development, the Reserve Bank of India (RBI) has lifted the restrictions on Kotak Mahindra Bank (KMB) Ltd, allowing the bank to resume onboarding new customers through its online and mobile banking channels, as well as issuing new credit cards. This decision is expected to have a positive impact on the bank’s net interest margin (NIM) and fee income growth in the near future, according to insights shared by Nomura India.
The lifting of these restrictions opens up new opportunities for KMB to expand its customer base through digital onboarding, potentially leading to increased acquisition of savings accounts and enabling cross-selling of products. Nomura India’s analysis suggests that KMB is well-positioned to capitalize on this development, particularly in the credit card segment, following the removal of these limitations.
Shares of Kotak Mahindra Bank surged by 2.25 per cent, reaching a high of Rs 1,986.95 in early BSE trade. Prior to the official market opening, the stock experienced a notable 10 per cent increase, trading at Rs 2,137.60.
Impact on Credit Card Segment
The RBI initially imposed the restrictions on KMB on April 24, 2024, prompting the bank to take corrective measures and submit compliance reports to the regulatory body. In response, KMB also conducted an external audit, with prior approval from the RBI, to validate its actions and ensure adherence to regulatory standards.
Nomura India’s analysis suggests that the removal of these restrictions paves the way for KMB to pursue growth opportunities in the credit card segment. This strategic move is expected to provide vital support to NIMs and fee income, while also driving customer acquisition through the resumption of digital onboarding. With a forward-looking approach, Nomura India maintains a Buy rating for KMB, setting a target price of Rs 2,110.
The growth in KMB’s credit card segment had experienced a notable slowdown following the imposition of restrictions, with credit cards outstanding decreasing by 2.7 per cent in FYTD25 to Rs 14,100 crore as of Q3FY24. Currently, credit cards account for 3.4 per cent of the bank’s overall loans, down from 3.9 per cent in Q4FY24. Additionally, the number of credit cards outstanding decreased from 60 lakh in April 2024 to 50 lakh as of December 2024, reflecting a market share decline from 5.9 per cent to 4.6 per cent.
Digital Customer Acquisition Strategy
Digital customer acquisition and servicing have been key focus areas for KMB’s growth strategy. The bank’s FY24 annual report highlighted the success of digital savings account Kotak 811, which accounted for 72 per cent of new savings account acquisitions. Moreover, over 50 per cent of credit cards, unsecured loans, insurance policies (non-life), and recurring deposits were cross-sold to Kotak 811 customers.
Despite these successes, the value contribution from digital native customers remains relatively low. Nomura’s analysis indicates that the bank’s reliance on end-to-end digital loans/deposits, particularly from Kotak 811 customers, is limited. However, the resumption of digital onboarding is expected to drive further acquisition of savings accounts and cross-selling of products, potentially enhancing KMB’s market position.
It is important to note that the information provided in this article is for informational purposes only and should not be considered as investment advice. Readers are encouraged to seek guidance from a qualified financial advisor before making any investment decisions.
In conclusion, the lifting of restrictions on Kotak Mahindra Bank by the RBI represents a significant milestone for the bank, opening up new growth opportunities in the credit card segment and digital customer acquisition. These strategic moves are expected to propel KMB’s financial performance and market position in the coming months, positioning the bank for sustained growth and success in the competitive banking landscape.
