RBI prohibition poses a significant risk to Kotak Bank
Delhi, New: The RBI’s regulatory action against Kotak Mahindra Bank, according to S&P Global Ratings on Friday, may limit the lender’s capacity to provide loans and maintain profitability.
On Wednesday, the RBI prohibited Kotak Mahindra Bank from providing new credit cards and initiating online client onboarding. For Kotak Mahindra Bank, credit cards represent a higher-yielding target growth sector. As of December 31, 2023, this portfolio increased at a rate of 52% year over year, while the growth of all loans was 19%, according to the US-based rating agency.
According to S&P, the Reserve Bank of India’s (RBI) action this week may force the bank to depend more on expanding its physical branch network to support growth, which would result in increased operational expenses. This might be detrimental to the bank’s ability to build its credit portfolio and turn a profit.
That being said, our ratings for Kotak Mahindra Bank (BBB-/Stable/A-3) will not be substantially impacted by this decision. This is due to the fact that, as of the end of December 2023, credit cards will only account for 4% of all loans.
