RBI has recently announced action on Kotak, saying these acts are required as per the concerns developed out of the Examination of Kotak Bank by Reserve Bank’s IT sector for years 2022 and 2023.
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The Reserve Bank of India’s (RBI) crackdown on Kotak Mahindra Bank (KMB) will affect the lender’s operations since, based on statistics provided by brokerages, the bulk of new business is obtained through digital channels.
Citi stated in a research for the third quarter that 99 percent of new credit cards and 95 percent of new personal loans were obtained online. Similarly, 76% of permanent deposits and recurring deposits as well as 90% of new investments came from digital sources.
Furthermore, according to the brokerage, the bank’s credit card portfolio increased by 52% year over year and accounted for 3.7% of the bank’s total advances in the third quarter. Citi claims that the RBI’s intervention will negatively affect net interest margin (NIM), growth, and fee income. Furthermore, the brokerage stated that the RBI’s decision would require an acceleration in the rate of branch expansion.
The issue started when Kotak Mahindra Bank (KMB) was prohibited by the banking regulation from onboarding new clients through its online and mobile banking channels and from issuing new credit cards on April 24. The supervisory concerns were related to the bank’s technological infrastructure.
RBI’s say for Kotak Mahindra Bank in the matter
The RBI claimed that the bank’s “continued failure” to address concerns led to the measures taken after it examined the bank’s IT systems during the previous two years. According to the RBI, Koak can continue to offer its credit card customers and other current clients its services unaffected by the restriction.
Since a substantial percentage of new account openings occur through online and mobile banking channels, the move will probably have an impact on Kotak Mahindra Bank’s ability to acquire new customers. The RBI’s move is also unfavorable for KMB’s credit card operations. Experts predict that the bank’s co-branded credit card agreements may be impacted by the central bank’s restriction on issuing new credit cards.
Additionally, Macquarie stated in a different research that a sizable percentage of assets and liabilities products are obtained digitally. A significant number of savings accounts have been created using KMB’s digital channel, 811. On the asset side, digital means account for the bulk of insecure product sourcing (9.2 percent mix ex-MFI). In comparison to the total increase of 18% YoY, these categories have risen at 40% YoY (9M FY24),” according to a note from Macquarie’s Suresh Ganapathy.
Although the credit card book makes up just around 4% of the entire book, Ganapathy stated that it has been rising at a rate of more than 50% year over year. In terms of liabilities, the majority of the FDs (fixed deposits) and RDs.