Nomura India said there will be a reputational impact on Kotak Mahindra Bank Ltd post the RBI barring of on-boarding customers online and via mobile banking. The foreign brokerage said it would watch out for how the matter resolves itself, especially considering the strongly worded nature of RBI’s press release.

That said, it does see only a limited impact on Kotak’s business and profitability due to the ban. All eyes would be on further clarity from the management when Kotak Mahindra bank declares its March quarter  results on May 4.

The restrictions imposed by RBI on Kotak Bank are reminiscent of similar actions taken against HDFC Bank Ltd in December 2020, Nomura said. The RBI removed restrictions on the issuance of credit cards on HDFC Bank in August 2021 (i.e., 8 months later), while the restrictions on HDFC Bank’s Digital 2.0 program only got lifted only in March 2022 (i.e. 15 months  later).

“During the similar ban on HDFC Bank, its credit card market share had fallen from 25.3 per cent in December 2020 to 23.1 per cent in August 2021. HDFC Bank, too, had conducted a third-party IT audit, which was ratified by RBI,” Nomura India pointed out.

Digital onboarding of customers

Nomura said digital customer acquisition and servicing has been at the forefront of the bank’s strategy but the bank has also acknowledged in the past that the value contribution from digital native customers (Kotak 811) is relatively low.

“Hence, it does not expect the direct business impact from these curbs to be very material. However, we will watch out for any step-up in tech spending for KMB. KMB has also been less aggressive on branch additions compared to other banks (it has added just 80-100 branches per year over the past three years). We will watch out for any change in the outlook here (led by curbs on digital customer acquisition) and any resultant impact on opex,” Nomura said.

Credit cards

Nomura said Kotak Mahindra Bank has 59 lakh credit cards outstanding (up 21 per cent YoY; 5.8 per cent market share on cards in force) and credit cards constitute 4 per cent of bank’s overall loans.

Kotak’s credit card loans outstanding were growing 52 per cent YoY as of Q3FY24.

The restrictions on credit cards are only on new card issuance, while bank can continue servicing its existing customers. However, the restrictions on issuance may impede with the bank’s medium-term objective of scaling-up unsecured retail loans to a “mid-teens percentage” of its loan book (currently at 11.6 per cent as of 3QFY24), Nomura said.

“We expect the impact of RBI’s curbs on Kotak’s business and profitability to be limited. However, we believe there will be a reputational impact on the bank, and we will watch out for how this matter resolves itself, especially considering the strongly worded nature of RBI’s press release. We await further clarity from management when KMB declares its 4Q results on 4 May,” it said.

The brokerage has a target of Rs 2,040 for Kotak Mahindra Bank.