Tag: Kotak Mahindra Bank

RBI’s action against Kotak Mahindra Bank: Here’s your FAQ answered

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) has recently taken measures against Kotak Mahindra Bank due to repeated non-compliance with IT norms. As a result, the bank has been prohibited from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards.

Here are some frequently asked questions to address concerns users may have:

[faq][ques]Will the current action affect existing customers and their use of Kotak Mahindra Bank’s digital services?[/ques][ans]There is no problem with the bank’s digital services if users have any existing savings account, salary account, loan account, or credit card. The bank has assured uninterrupted services, including credit card, mobile, and net banking, for existing customers.[/ans][/faq]

[faq][ques]If a user had applied for a Kotak Mahindra Bank credit card online. What will happen to the application now?[/ques][ans]If the bank processed and approved the card application before the RBI’s embargo, the user will still receive the card. However, no new credit card applications are being accepted at the moment.[/ans][/faq]

[faq][ques]If a user had applied for a personal loan online before the RBI’s supervisory action. What will happen to the sanction of that loan now?[/ques][ans] If the personal loan hasn’t been sanctioned yet, it might not be processed further due to the current restrictions.[/ans][/faq]

[faq][ques]Can users get a new credit card from Kotak Mahindra Bank?[/ques][ans]As RBI has banned Kotak Mahindra Bank from issuing new credit cards, users cannot obtain a new credit card from the bank at the moment.[/ans][/faq]

[faq][ques]Can Kotak Mahindra Bank customers apply for a new personal loan online?[/ques][ans]No, users cannot apply for a personal loan online despite having an account with the bank.[/ans][/faq]

[faq][ques]Can users open a savings bank account at any branch of Kotak Mahindra Bank?[/ques][ans] Yes, users can open a savings account at any branch of Kotak Mahindra Bank, as the bank is not restricted from onboarding new customers offline.[/ans][/faq]

[faq][ques]How long will RBI’s restrictions on Kotak Mahindra Bank remain in place?[/ques][ans]The restrictions will be reviewed upon completion of a comprehensive external audit and remediation of deficiencies, which experts say may take six to twelve months.[/ans][/faq]

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Uday Kotak loses more than what he earned in 2023 as the bank’s shares slump

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The massive selloff in Kotak Mahindra Bank shares wiped out close to ₹40,000 crore of investor wealth on Thursday (April 25). Noticeably, the founder Uday Kotak, who owns nearly 26% stake in the bank bore the heaviest brunt from the sell-down.

The net worth of the country’s richer banker declined by $1.3 billion on Thursday — which was more than what he earned last year. According to the Bloomberg Billionaires Index, the banker’s fortune increased by $942 million in 2023 to $14.6 billion.

While his fortune swelled by $3.3 billion in 2019, during the next year it surged further by $1.6 billion to $16.4 billion. However, the years 2021 and 2022 were not so good for the banker as he witnessed a decline of $1.4 billion and $1.2 billion, respectively. The data further shows that his average net worth over the last three years stood at $14.4 billion.

Also Read: Uday Kotak forecasts global turbulence and prolonged high rates worldwide

Shares of Kotak Mahindra Bank tumbled 11% on Thursday after the Reserve Bank of India (RBI) banned the private lender from adding new customers through its digital channels and from issuing new credit cards. Thursday’s drop in the bank’s shares was the biggest single-day fall since March 2020. Analysts expect the RBI’s action will have a near-term drag on the lender’s shares.

According to Morgan Stanley, the impact on lender’s earnings will likely be limited over the next few quarters, as the bank is diversified and can accelerate growth in other segments to sustain earnings momentum. “We believe RBI’s move will weigh on the stock price in the near term,” said Morgan Stanley.

Additionally, the sell-off in Kotak Mahindra bank stock also resulted in its rival Axis Bank beating the former’s market capitalisation. However, it’s not for the first time that Axis Bank toppling Kotak Mahindra Bank in market valuation. Axis Bank had done so in September 2016 as well, when both the lenders had a market capitalisation of about ₹1.5 lakh crore.

Interestingly, Axis Bank was less than half the size of Kotak Mahindra Bank in November 2021. Since then, Axis Bank has added close to ₹1.5 lakh crore to its market valuation. In comparison, Kotak Mahindra witnessed a market cap erosion to the tune of ₹74,000 crore rupee during the same period.

Also Read: ‘Enjoying life as a private citizen’ — Uday Kotak on retirement

While the stock of Kotak Mahindra plummeted more than 10% in Thursday’s trade, shares of Axis Bank surged 6% after better-than-expected March quarter earnings bolstered investor sentiment. The gauge for bank stocks —the Nifty Bank index closed 1% higher at 48,494.95 points.

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RBI action against Kotak and other banks should not be a surprise

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The series of actions against financial entities by Reserve Bank of India (RBI) has led to a debate on the larger message the regulator wants to send out to the ecosystem, and whether imposing business restrictions is the best way to deal with non-compliance.

“If you see the recent actions against regulated entities, it will become clear what the RBI wants banks and other regulated entities to prioritise and focus on. (RBI) is keen to enforce good risk management and assurance practices, compliance with regulatory guidelines, board effectiveness, fairness to customers, and good governance,” said a person directly familiar with the RBI’s actions, on the condition of anonymity.

Secondly, regulatory or supervisory action taken on entities is “not a moment of surprise for anyone,” said another person familiar with the regulatory functioning.

“When issues are found, RBI engages in bi-lateral discussions for at least a year.. Once inspection findings reveal deficiencies, RBI seeks a response, gives time to rectify, checks to see if compliance is done or not- there is a lot of back and forth and this process takes a year or more so there is adequate time. Many discussions are held and more than adequate time is given to banks or other entities before such action is taken,” said this person.

As to whether placing restrictions was the best re-course to dealing with non-compliance issues, the person quoted earlier explained, that the RBI has various tools at its disposal, from warnings, to fines, to business restrictions, change in management and in the worst case scenario license cancellation in extreme cases, and it choses the appropriate tool after much deliberation.

It is only when warnings, bi-lateral engagements do not work does the RBI act to impose business restrictions, explained one of the people quoted before.

“Business restrictions don’t impact customer service – every single action if you see places embargo on new customer acquisition or new products until they fix their system. Servicing existing clientele is not impacted by supervisory actions, that’s always on RBI’s mind. New business impact will finally impact shareholders similar to a penalty, so no change in impact target. Also this will hurry up the entity to expedite remediation,” said a person closely involved with RBI’s functioning.

On the question of why action is taken against select entities, when in certain cases, other banks or NBFCs may also be at fault or non-compliant at some level as well, one of the persons explained, “while many entites may be doing it, RBI looks at (1) persistent non-compliance as well as (2) the proportionality of the effect of non-compliance on the ecosystem, and acts accordingly. This is to ensure there is demonstrative affect.”

In the past, such regulatory actions would be accompanied by just a line or two on the reason behind the action. However, this has now changed after Reserve Bank took feedback from stakeholders to demanded a more detailed reasoning for their understanding of the regulator’s point of view, explained the people quoted earlier.

In the case of IIFL Finance or JM Finance, and more recently in the case of Kotak Mahindra Bank, the regulator has detailed the background to the action, explaining why the regulatory action was necessitated.

“These detailed press releases are also intended to send a message to others to take notice, and fix their house if it is not in order,” added one of the person quoted earlier.

ALSO READ | Arvind Sanger’s view on Kotak Mahindra Bank after RBI action

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Arvind Sanger’s view on Kotak Mahindra Bank after RBI action

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Arvind Sanger, Managing Partner of Geosphere Capital Management believes that a meaningful pullback in the Kotak Mahindra Bank stock would be a buying opportunity, although it might face challenges for some time.

“It (Kotak) is not a stock that we are currently involved in, but if the stock gets punished too much, we would be interested because this is a high-quality franchise, this will be a bit of an impediment in terms of short-term growth. So short-term growth may suffer, but any meaningful pullback for a high-quality bank like this would at some point be a buying opportunity,” Sanger told CNBC-TV18.

On Wednesday, April 24, the Reserve Bank of India (RBI) ordered the private lender to halt new customer acquisitions through online and mobile banking channels and stop issuing new credit cards, citing concerns over compliance and risk management.

The Kotak Mahindra Bank stock crashed 10% today (April 26), its biggest single-day drop since March 23, 2020, hitting a 52-week low. It shed nearly ₹30,000 crore in market capitalisation.

Also Read | RBI bars Kotak Bank from onboarding new online customers, issuing new credit cards

Sanger prefers high-quality private banks as he believes that for a sustained economic cycle, private sector banks in the country will have to be at the forefront in terms of driving the financing needed for the growth.

However, he also advises being careful and flexible when investing, especially with the changes brought by artificial intelligence (AI).

Also Read | Kotak Mahindra Bank to see de-rating post RBI action? Here’s what analysts said

In the tech space, Sanger finds it difficult to figure out which companies will succeed.

He believes that many IT companies catering to the general public will struggle due to AI advancements in the next couple of years.

For the entire interview, watch the accompanying video

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ICICI Bank’s iMobile app glitch: Lender blocks 17,000 new credit cards incorrectly mapped to wrong users

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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ICICI Bank on Thursday (April 25) issued a statement in response to concerns raised regarding a security flaw in the bank’s iMobile app. The bank’s spokesperson assured prompt action to rectify the situation.

“It has come to our notice that about 17,000 new credit cards issued in the past few days were erroneously mapped in our digital channels to wrong users, constituting approximately 0.1% of the bank’s credit card portfolio,” the spokesperson stated.

“As an immediate measure, we have blocked these cards and are issuing new ones to the customers. We regret the inconvenience caused,” he said.

The spokesperson further clarified that no instances of misuse of cards from this set have been reported.

However, the bank affirmed its commitment to compensating customers in the event of any financial loss arising from the error.

This announcement follows recent reports of a security glitch in the iMobile app, where users were able to access other customers’ credit card details.

One Reddit user flagged a situation where another user’s Amazon Pay credit card details were mistakenly displayed.

Additionally, users reported successful ICICI card transactions despite entering incorrect three-digit CVVs.

Sumantha Mandal, Founder of TechnoFino and CreditPedia, reiterated concerns about the security breach on platform X.

He stated that this error allowed users to access other customers’ credit card details, including sensitive information such as full card numbers, expiry dates, and CVVs.

‼️ Serious Security Glitch in ICICI Bank’s iMobile Alert!!!
Several users have reported being able to view other customers’ ICICI Bank credit cards on their iMobile app. Since the full card number, expiry date, and CVV are visible on iMobile, and one can manage international…

— Sumanta Mandal (@karna_ocw) April 25, 2024

Mandal also shared screenshots from concerned users.

Full Details & Discussions with some screenshots: https://t.co/xH3CTRHtjk

— Sumanta Mandal (@karna_ocw) April 25, 2024

In one of the shared screenshots, a user highlighted that despite OTP restrictions for domestic transactions, he was able to perform international transactions using the details obtained from the iMobile app.

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Uday Kotak loses over a billion dollars in net worth as Axis Bank takes Kotak Mahindra Bank’s spot

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Axis Bank Ltd. has overtaken Kotak Mahindra Bank Ltd. on Thursday to become the fourth largest lender by market capitalisation in India. This happened after Kotak Mahindra Bank’s shares declined 10% following the Reserve Bank of India’s directives barring the lender to onboard new customers through digital channels and from issuing new credit cards.

The net worth of Uday Kotak, the former managing director who still owns 26% stake in the bank, has fallen by $1.3 billion following the sharp sell-off in the stock.

As of Thursday, Axis Bank has a market capitalisation of ₹3.43 lakh crore, while Kotak Mahindra Bank, after a ₹30,000 crore market capitalisation erosion, commands a market capitalisation of ₹3.32 lakh crore.

HDFC Bank tops the list with a market capitalisation of ₹11.5 lakh crore, followed by ICICI Bank at ₹7.7 lakh crore. India’s largest lender, State Bank of India follows suit, with a market capitalisation of 7 lakh crore.

This is the first instance since September 2015 when Axis Bank has toppled Kotak Mahindra Bank in market capitalisation terms. Back then, both lenders had a market capitalisation of ₹1.5 lakh crore each.

Interestingly, Axis Bank was less than half the size of Kotak Mahindra Bank in market capitalisation terms in November 2021. Since then, Axis Bank has added close to ₹1.4 lakh crore in market capitalisation, while Kotak Mahindra Bank has lost ₹46,000 crore in market capitalisation.

Analysts who have coverage on Kotak Mahindra Bank said that while the impact on the lender’s profitability is likely to be minimal, it may have a greater impact in case the ban remains in place for a prolonged period. They also warned of a loss in reputation for the bank post the RBI action.

Kotak Mahindra Bank, the most expensive banking stock in India has delivered negative returns so far in 2024, declining 13%. In comparison, the Nifty Bank is unchanged for the year.

At current prices, Kotak Mahindra Bank has a one-year price-to-book multiple of 3.3x, while HDFC Bank trades at a multiple of 2.3x. ICICI Bank and SBI are trading at a multiple of 2.8x and 1.7x price-to-book respectively. Axis Bank trades at a price-to-book multiple of 1.9x on a one-year forward basis.

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Kotak Mahindra Bank shares drop 10% to a 52-week low; Biggest fall in four years post RBI action

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of Kotak Mahindra Bank Ltd. fell as much as 10% on Thursday in early trading after the Reserve Bank of India directed the private lender to stop the issuance of fresh credit cards and onboarding new clients through their digital channels. This is the biggest single-day drop for the stock since March 23, 2020.

The RBI directive came as part of regulatory actions taken by the central bank in response to concerns regarding compliance and risk management at Kotak Mahindra Bank.

Before market open, close to 16.3 lakh shares of the lender had changed hands in a large deal that took place. Buyers and sellers in that transaction remain unknown so far.

Most brokerages have maintained their stance on Kotak Mahindra Bank post the RBI action. While some said that the impact on the bank’s profitability post this event is likely to be minimal, it may start having some impact if the ban stays in place for a prolonged period.

Analysts tracking Kotak Mahindra Bank alluded to similar issues faced by India’s largest private lender HDFC Bank, which took anywhere between nine months to 15 months to resolve.

With this drop, Kotak Mahindra Bank has lost ₹30,000 crore in market capitalisation so far. The stock has also declined to a 52-week low on Thursday. Currently, it commands a market capitalisation of ₹3.3 lakh crore.

According to Abizer Diwanji, Partner and National Leader Fin Svcs, EY-India, the banking industry is transforming to a more tech-based platform. “If that is happening, I think the regulator should work concurrently with the banks to make sure that they also upgrade themselves onto what are the acceptable policies and processes that will be there going forward,” he said.

Gurmeet Chadha, Managing Partner and CIO, of Complete Circle said, “I think the message to all the banks is very clear that the digital infrastructure and data security, RBI won’t compromise. The way forward is digital so any compromise there is not acceptable.”

Shares of Kotak Mahindra Bank are trading 9.7% lower at ₹1,663.95.

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Kotak Mahindra Bank to see de-rating post RBI action? Here’s what analysts said

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Brokerage firm Macquarie has called Reserve Bank of India’s actions of private lender Kotak Mahindra Bank Ltd., “a significant setback.” The firm expects a medium-term de-rating for Kotak Mahindra Bank, similar to HDFC Bank’s de-rating that took place after the regulator’s actions on India’s largest private lender in 2020.

Macquarie highlighted in its note that a lot of savings accounts are opened through Kotak Bank’s 811 digital channel and majority of the unsecured products are also done digitally.

The ban on digital on-boarding is bound to affect growth over the medium-term, Macquarie wrote in its note.

On Wednesday evening, the Reserve Bank of India directed Kotak Mahindra Bank to stop issuing fresh credit cards and also onboard new clients through its digital channels.

Macquarie highlighted that Kotak Mahindra Bank seems reluctant in opening branches and less than 350 branches being opened in the last four years is also an issue.

The brokerage remains neutral on Kotak Mahindra Bank with a price target of ₹1,860, which almost the same as the stock’s closing price on Wednesday.

Nomura also remains neutral on Kotak Mahindra Bank with a price target of ₹2,040. Although the brokerage sees limited impact on RBI’s curbs on the lender’s business and profitability, it does see a reputational impact on the lender.

“We will watch for how this matter resolves itself, especially considering the strongly worded nature of RBI’s release,” the brokerage wrote.

Nomura highlighted that credit cards constitute nearly 4% of the bank’s overall loans and were growing at 52% year-on-year as of the December quarter. The brokerage also said that the restrictions on the issuance may impede with the bank’s medium-term objective of scaling-up unsecured retail loans to mid-teens of its loan book.

Jefferies though has cut its price target on Kotak Mahindra Bank to ₹1,970 from ₹2,050 earlier. The brokerage continues to retain its “hold” recommendation on the lender. Jefferies highlighted similar issues faced by HDFC Bank in 2020, which took around 9-15 months for resolution.

The brokerage said that in case the resolution takes more than six months, it can affect the lender’s revenue and costs.

CLSA also echoed Nomura’s views that the impact on Kotak Bank’s profit is likely to be modest unless it stays in place for long. It further highlighted that the digital platform’s contribution to total savings deposits is only 8%.

While credit cards is a fast-growing segment, it contributes only 4% to the total loan book and given that its a high Return on Assets (RoA) business, the profit contribution will be in high-sigle-digits, according to CLSA.

The brokerage retained its “outperform” rating on the stock with a price target of ₹2,100.

Citi also wants Kotak Mahindra Bank to accelerate the pace of branch expansion and said that the RBI actions will adversely impact the lender’s growth, Net Interest Margin (NIM) and fee income.

It remains “Neutral” on Kotak Mahindra Bank with a price target of ₹2,040.

Shares of Kotak Mahindra Bank have gained 5% so far in the last one month but have underperformed so far in 2024, declining 3.5%.

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How big is Kotak Mahindra Bank’s credit card business

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) has prohibited Kotak Mahindra Bank from onboarding new customers through online and mobile banking channels. It has also halted the issuance of fresh credit cards with immediate effect.

This action comes as a result of deficiencies identified in the bank’s IT risk management, the RBI said.

What exactly went wrong with Kotak Mahindra Bank?

Kotak Mahindra Bank has been directed by the RBI to cease and desist from acquiring new customers digitally and issuing fresh credit cards due to concerns regarding its IT infrastructure and risk management practices.

Despite repeated advisories from the RBI, the bank reportedly failed to address these concerns comprehensively and in a timely manner, prompting the regulatory action.

Impact on customers

For existing customers of Kotak Mahindra Bank, it’s essential to note that the business restrictions imposed by the RBI do not affect the services provided to them.

Existing customers, including credit card users, will continue to receive uninterrupted services as usual.

However, potential new customers will face temporary limitations on opening accounts or obtaining credit cards through the bank’s online and mobile platforms.

Impact on bank’s business

Kotak Mahindra Bank has been lately embracing digital innovations in its business operations.

Around 95% of new personal loans by volume and 99% of new credit cards have been facilitated through digital channels as of the third quarter of FY24.

In Q3FY24, Kotak Mahindra Bank witnessed growth in its credit card book, with a year-on-year increase of 52% and a quarter-on-quarter rise of 10%.

This growth trajectory reflects the bank’s strong reliance on digital platforms for business expansion, with the credit card book amounting to ₹13,882 crore, approximately 3.9% of its total loans.

However, the recent regulatory restrictions are likely to impact its business operations.

Deepali Pant, Former Executive Director at the RBI, expressed that the bank’s retail portfolio is expected to suffer setbacks.

However, she emphasised that these challenges are temporary in nature.

According to Digant Haria, Co-Founder of Greenedge Wealth Services, the retail segment was anticipated to be the most rapidly growing sector for Kotak Bank. However, the recent developments have shaken confidence in this projection.

It is anticipated that both the stock value and the business itself will require a significant amount of time to recover.

But how long?

Ashutosh Mishra, an analyst at Ashika Stock Broking, highlighted that based on previous instances where the RBI has taken similar actions against banks or major payment networks like Visa and MasterCard, the recovery process could extend up to a year or longer.

Regulatory response and future outlook

The RBI’s decision to impose business restrictions on Kotak Mahindra Bank is aimed at safeguarding the interests of customers and ensuring the stability of the financial ecosystem.

The restrictions will remain in place until the completion of a comprehensive external audit commissioned by the bank with the RBI’s approval.

The review process will also consider observations from RBI inspections and the satisfactory remediation of identified deficiencies.

Historical context

This is not the first instance of the RBI taking regulatory action against a leading Indian bank for IT-related issues.

In 2020, HDFC Bank faced similar restrictions after repeated outages in its online platforms, leading to a halt in new digital launches and credit card issuances.

The RBI partially lifted the ban in subsequent months.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow