Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. CRISIL Ratings has taken note of the order dated April 24, 2024 by the Reserve Bank of India (RBI) directing Kotak Mahindra Bank Limited (KMBL) to cease and desist with immediate effect, from (i) onboarding new customers through its online and mobile banking channels and (ii) issuing fresh credit cards. However, RBI has permitted the Bank to continue providing services to its existing customers, including its credit card customers. RBI’s actions are based on concerns arising out of their IT Examination of the Bank for the years 2022 and 2023 as well as several outages of the Bank’s core banking systems and its online and digital channels, the most recent one being a service disruption on April 15, 2024.
CRISIL Ratings understands that the Bank is in discussions with the RBI and the timeline on lifting the restrictions imposed is subject to RBI’s review upon completion of a comprehensive external audit, which is yet to commence.
The impact of these restrictions on the Bank could manifest in three areas. 1) Sourcing of deposits from new customers acquired through online or mobile banking channels; 2) credit card business from new customers and 3) Ability to offer asset side products like personal loans and business loans or investment products to new customers by onboarding them in a frictionless manner through online or mobile banking channels.
On the deposits side, savings accounts, current account and term deposits constituted 28.7%, 16.8% and 54.5% respectively as on March 31, 2024. In the case of new savings accounts, a significant volume were originated through the bank’s 811 digital account offering. However, CRISIL Ratings understands that the initial value contribution of savings accounts onboarded digitally from these new to bank customers is significantly lower. For 9MFY24, ~15% of incremental savings account by value were from these customers. This formed less than 1% of the total average outstanding savings account. Current accounts are typically not originated through online or digital channels. For term deposits too, less than 5% of incremental term deposits were mobilised through digital route from both existing and new customers combined and this formed less than 2% of the total outstanding term deposits.
On the assets side, personal loans, business loans, consumer durables and credit cards were the fastest growing segments for the Bank but contributed to just around ~9% of advances. Within this, credit cards, where there is a complete embargo on on-boarding new customers, is ~4% of the portfolio. While personal loans and business loans are sold primarily through digital modes, a large proportion of this is to existing customers of the Bank.
Based on the above, the near term impact on overall growth - both assets and liabilities side – is likely to be low. However, CRISIL Ratings believes that digital acquisition of new customers through online or mobile banking channels is a key imperative for any Bank as customers are more tech-savvy and prefer seamless onboarding. In the case of KMBL as well, 811 customers offer a sizeable cross sell opportunity. Hence, a prolonged period of restrictions could impact growth in customer base and therefore overall business. Further, any impact on customer confidence, in turn impacting the pace of deposit mobilisation from non-digital channels will need to be monitored. Lastly, while CRISIL Ratings understands that the Bank has, over the last 18-24 months, made significant efforts towards strengthening their IT systems, as well as hired senior level executives in the technology domain; management’s ability to resolve these issues in a timely manner to the satisfaction of the external auditor and the regulator will be a monitorable.
Separately, CRISIL Ratings also takes note of the Bank’s announcement on stock exchanges on April 29, 2024 stating that their Joint Managing Director Mr. K.V.S Manian has submitted his resignation to pursue other opportunities in the financial services domain. In recent times, the Bank has also faced other senior level exits, primarily on account of superannuation. The senior team members were associated with the Bank for decades and were an integral part of the Bank’s growth strategy and decision-making over this long period. Stability of senior management is critical for any organization. While the Bank has a succession plan and adequate depth of experienced managerial personnel, CRISIL Ratings will continue to monitor for any impact of these developments on the overall bank’s credit profile.
The ratings continue to reflect the Kotak group’s strong capitalisation, healthy asset quality and comfortable earnings profile.
For accessing the previous rating rationale, refer to the following link:
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