Kotak Mahindra Bank’s Path to Enhanced Credit and Funding Amidst Regulatory Constraints

Kotak Mahindra Bank will be able to improve its credit and funding profile over the next 12 months, despite some impact on growth and profitability due to the RBI’s restriction on onboarding new customers online, according to S&P Global Ratings credit analyst Nikita Anand. In April, the Reserve Bank of India (RBI) had prohibited Kotak Mahindra Bank from issuing fresh credit cards and onboarding new customers online. Anand stated that S&P’s base case assumption is that the bank should be able to manage the impact on its credit profile, noting that the lender has made significant progress on tech enhancement in the last 18 months, including the hiring of senior-level executives like the Chief Technology Officer. However, Anand mentioned that it will take time for the bank to implement the changes highlighted by the RBI and conduct a comprehensive external audit to address the RBI’s concerns. Anand stated in a webinar, “Nonetheless, it remains an overhang on the bank’s credit profile over the next 12 months or so… We believe the next 12 months or so, we should be able to remove the negative adjustments and the bank should be able to manage the credit profile in general and funding profile in particular, notwithstanding some impact on growth and profitability.” S&P has a standalone credit profile (SACP) assessment of ‘BBB-‘ on Kotak Mahindra Bank, which includes the negative adjustment for the RBI’s action. Anand also mentioned that the restriction could affect the bank’s credit and deposit growth and profitability, as credit cards are a higher yielding target growth segment for the bank, which was growing at over 50 per cent compared to loan growth of 19-20 per cent. However, credit cards make up a small portion of total loans at 4 per cent, and the bank is not restricted from cross-selling products to existing customers. Additionally, Anand noted that the share of customers onboarded online was generally on the lower side compared to the overall new customer onboarding.