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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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Summary
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.
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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