MUMBAI: The Reserve Bank has delivered body-blow to Kotak Mahindra Bank on Wednesday and it is so hard that it nearly fully cripples the fourth-largest private sector lender as it has of late been selling loans and cards and other products and all services online or through the mobile app.
Following the action, wherein the RBI ordered Kotak Bank to “to cease and desist, with immediate effect, from on-boarding new customers through its online and mobile banking channels as well as from issuing fresh credit cards,” for its continued failure to improve its IT risk mechanism for the past two years, the bank stock which commands a high premium over peers, tanked over 17 percent to hit an intra-day low of Rs 1,602, and closed at still nearly 11% down from the previous close.
According to an analysis by Yes Securities, the ban will cripple the bank as almost all its key functions have been digital of late. Look at the share of digital sourcing for various product lines is as provided below: as much as 99% of new credit cards sales are done online, and 95% of new personal loans by volume are sold online; nine out of 10 or 90% of new investment accounts opened are online; and 79% of all new business loans are disbursed, Shivaji Thapliyal, head of equity research at Yes Securities said in a note on Thursday evening. It can be noted that Kotak is the fifth largest credit card issuer with 5.8% market in the 100 million cards market and its management has been pushing this product aggressively for long saying the higher pricing and the resultant yield it fetches are worth pursuing.
Similar has been the management view when founder Uday Kotak was leading the bank when it comes to unsecured books like personal loans again going by the higher margins such loans to the bank. For the medium term, the bank has a target of pushing the share of its unsecured retail book to the higher teens from about 10% in the recent quarters.
Commenting on the sternest action on a large lender in recent years, (as punitive action on HDFC in Dec 2020 was only on credit cards) Thapliyal of Yes Securities said the action entails a ban on on-boarding new customers via any and all online channels.