Kotak Mahindra Bank is on the rise in its credit card business, bolstered by the success of its 811 digital scheme, which has attracted a large number of customers
However, the bank faced setbacks as its shares fell by more than 10% in the trading session on Wednesday as the RBI banned new customers from entering banking through online and mobile banking channels including a ban on new credit cards, because of that the bank’s share price plummeting.
Kotak Mahindra Bank has a credit card market share of 5.8% based on the number of cards issued. and commands a market share of 4%.
Following the regulatory action, shares of Kotak Mahindra Bank fell by Rs 1,658.75, indicating a 13% decline in 2024 share price.
The bank experienced strong retail growth, fueled by increased digital sourcing and a focused approach to non-security products to maintain asset quality and drive profitability.
“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.
“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
Motilal Oswal also noted that the regulatory restrictions are driven by concerns arising out of the RBI’s IT examination of the Kotak 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. The bank plans to conduct a comprehensive external audit with the approval of the RBI to address the deficiencies and oversights identified in the RBI review.
To sum up, Kotak Mahindra Bank’s recent challenges are a significant hindrance to its growth trajectory, especially in the retail sector, as the bank is committed to addressing IT deficiencies to drive governance practices forward to restore market confidence