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Tag: Kotak Bank

  • RBI bars Kotak Mahindra Bank from onboarding new customers through online & mobile channels

    RBI bars Kotak Mahindra Bank from onboarding new customers through online & mobile channels

    The Reserve Bank of India has barred Kotak Mahindra Bank from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards for failing to build IT systems and controls commensurate with its growth leading to serious deficiencies and non-compliances with regulatory requirements.

    According to RBI’s press release, “These actions are necessitated based on significant concerns arising out of Reserve Bank’s IT Examination of the bank for 2022 and 2023 and the continued failure on part of the bank to address these concerns in a comprehensive and timely manner”.

    RBI’s press note specified that the bank is found to be “materially deficient in building necessary operational resilience on account of its failure to build IT systems and controls commensurate with its growth”.

    It further added that serious deficiencies and non-compliances were observed in Kotak Mahindra Bank’s IT inventory management, patch and change management, user access management, vendor risk management, data security and data leak prevention strategy, business continuity and disaster recovery rigour and drill. Interestingly, the press note pointed out that for two consecutive years, the bank was seen deficient in its IT Risk and Information Security Governance vis-à-vis the regulatory requirements.

    “During the subsequent assessments, the bank was found to be significantly non-compliant with the Corrective Action Plans issued by the Reserve Bank for 2022 and 2023, as the compliances submitted by the bank were found to be either inadequate, incorrect or not sustained”. The order also noted that in the absence of a robust IT infrastructure and IT Risk Management framework, the bank’s core banking system and its online and digital banking channels have suffered frequent and significant outages in the last two years with the recent one being 10-hour service disruption seen on April 15, 2024.

    Ban implications

    The curbs have been imposed under section 35A of the Banking Regulation Act. This section is invoked in lieu of public interest, interest of banking policy or when affairs of a bank are detrimental to depositors or prejudicial to the interest of the bank. RBI’s press release notes that the action on the bank was to prevent any possible prolonged outage which may seriously impact not only the bank’s ability to render efficient customer service but also the financial ecosystem of digital banking and payment systems.

    Imposed as a ‘cease and desist’ order, any deviation or non-compliance would attract very high penal action by the regulator. The curbs may be removed post a comprehensive external audit conducted by the bank with RBI’s approval and the remedial actions pointed out therefrom are complied with to RBI’s satisfaction.

    Reacting to the RBI order, Kotak Mahindra Bank said it has taken measures for adoption of new technologies to strengthen its IT systems and will continue to work with RBI to swiftly resolve balance issues at the earliest. “We want to reassure our existing customers of uninterrupted services, including credit card, mobile and net banking. Our branches continue to welcome and onboard new customers, providing them with all the bank’s services, apart from issuance of new credit cards,” the bank said.

    Past cases

    This is the third instance of imposing business restrictions among banks (see table) and incidentally, following the curbs placed on IIFL Finance and JM Financial earlier this year, Kotak Bank is the third instance of bans imposed on regulated entities so far in 2024.

    However, compared to HDFC Bank and Bank of Baroda’s mobile banking app (bob World) instances, action taken on Kotak Bank seems to be the most stringent. Curbs on bob World are yet to be removed while it took HDFC Bank almost two years to remedy the deficiencies pointed out by the regulator.

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  • Lenders flag rising delinquencies in small ticket unsecured retail loans post RBI caution

    Lenders flag rising delinquencies in small ticket unsecured retail loans post RBI caution

    A fortnight after RBI cautioned banks against unprecedented growth in unsecured retail loans and asked them to grow “sensibly”, large banks and NBFCs have flagged increased risks and delinquencies in some small-ticket segments.

    As a part of Q2 earnings, ICICI Bank highlighted that market trends and research indicate risk build up and higher defaults in lower ticket loans, especially below ₹50,000 where affordability and repayment ability are constraints.

    Kotak Bank too acknowledged headwinds and higher delinquencies in certain unsecured segments, especially smaller ticket loans, but interim MD Dipak Gupta said the risk-adjusted returns are still “okay”.

    Lenders are continuously monitoring these portfolios and haven’t reached a point of putting the brakes or panicking, he said, adding that while the rate of default is higher than last year, it continues to be below pre-Covid levels.

    Bajaj Finance, the largest retail NBFC, said leverage levels have worsened for the below ₹50,000 ticket portfolio and the company has cut exposure to borrowers with multiple lines of credit of less than ₹50,000 as it reflects imprudence.

    Personal loans up

    Personal loans, including credit cards, grew to 10.7 crore in FY23 from 7 crore in FY22 and 4.5 crore in FY20, led by the less than ₹50,000 and above ₹8 lakh segments, as per an internal analysis by Bajaj Finance. Industry AUM for the segment rose to ₹13.5-lakh crore in FY23 from ₹7.5-lakh crore in FY20.

    Unsecured retail loans accounted for a significant portion of lenders’ fresh slippages in Q2 FY24, however most lenders dismissed any marked concerns given the smaller share of these loans in the total book and the steady rate of collections and recoveries.

    A recent SBI report said unsecured retail loans comprise one-tenth of banks total loans, indicating contained risk at the time. Small-ticket personal loans of below ₹50,000 comprised 2 per cent of banks’ overall personal loans and 0.3 per cent of retail loans as of FY23, according to CIBIL CMI data.

    Corrective action

    Bajaj Finance has reduced exposure to urban unsecured retail loans by 8 per cent and rural loans by 14 per cent. MD Rajeev Jain said the rural B2C segment looked the most vulnerable at the moment and was the only segment where the lender has taken “corrective action” based on the bounce and slippage rates and portfolio efficiency.

    While Kotak Bank will continue its policy of completely providing for unsecured retail loans that are 180 dpd (days past due), RBL Bank said it has accelerated risk mitigation by fully providing for such loans at 120 dpd. This led to the bank providing an ₹48 crore more, in addition to which it also made contingent provisions of ₹252 crore on its microfinance and credit card portfolios.

    Yes Bank said it has strengthened underwriting and is strategically going slower in certain retail segments such as unsecured loans, given the increasing trend of delinquencies, especially in the 30 dpd segment.

    In the October policy, RBI had asked lenders to strengthen their internal risk mechanisms as the “first line of defence” to avoid any future challenges, adding that robust risk management and stronger underwriting standards are the “need of the hour”.

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  • Kotak Bank Q1 PAT up 67% on strong NII, other income growth

    Kotak Bank Q1 PAT up 67% on strong NII, other income growth

    Kotak Mahindra Bank posted a net profit of ₹3,452 crore for Q1 FY24, up 67 per cent y-o-y led by strong growth in net interest and other income.

    Fees and services income was up 20 per cent y-o-y to ₹1,827 crore for the quarter.

    Sequentially, the profit after tax was 1.3 per cent lower on account of higher provisions due to increase in slippages as the bank maintained higher provisions on restructured and unsecured loans.

    Net Interest Income (NII) was up 33 per cent y-o-y at ₹6,234 crore. Net Interest Margin (NIM) for the quarter was 5.57 per cent.

    In the earnings call, the management said that it expects NIM to keep moderating in the coming few quarters due to deposit repricing and eventually stabilise at the long-term average of around 5.25 per cent.

    Customer Assets, including advances and credit substitutes, increased by 18 per cent yoy to ₹3.6 lakh crore as at June 30. However, the bank continues to be cautious on growing the corporate portfolio given the pricing issues in the market.

    The bank sees loan growth for FY24 in high teens to early 20, also aided by a pick up in corporate loans which grew 7 per sequentially during the quarter.

    Unsecured retail advances (including Retail Micro Finance) accounted for 10.7 per cent of net advances as of June 30, up from 7.9 per cent a year ago, with growth across segments such as credit cards, personal and business loans and MFI, the bank said.

    On stress in the unsecured book, Joint MD Dipak Gupta said that the portfolio is holding well for now given also that the growth is on a small base. The bank, is however, continuously monitoring and watching the portfolio to ensure portfolio quality, he said.

    Deposits of the bank were at ₹3.9 lakh crore as of June 30, led by 49 per cent growth in CASA deposits, largely led by current account deposits which grew 8 per cent y-o-y.

    Kotak Bank’s cost of funds increased sequentially, largely due to the increase in the share of higher cost ActivMoney and term deposits even as cost for savings deposits declined due to 1 per cent y-o-y degrowth.

    The bank saw slippages of ₹1,205 crore in Q1, of which ₹288 crore were written back during the quarter itself. Slippages were slightly elevated, driven by unsecured retail loans and tractor finance. Recoveries and upgrades were at ₹692 crore for the quarter.

    Gross NPA ratio of the bank improved to 1.77 per cent from 1.78 per cent a quarter ago and 2.24 per cent a year ago. Net NPA ratio at 0.40 per cent was also better than 0.62 per cent in the previous year and 0.37 per cent in the previous quarter.

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  • Uday Kotak reflects on time as head of bank in latest annual report

    Uday Kotak reflects on time as head of bank in latest annual report

    An investor who invested ₹10,000 with Kotak Mahindra Group in 1985 would be worth about ₹300 crore today, according to Uday MD & CEO, Kotak, Kotak Mahindra Bank (KMB).

    “As I step down from my whole-time role soon, I would like to reflect on what that role means. I am a manager, a board governance member and a strategic shareholder defined in Indian terminology as a promoter.

    “Yes, I have spent most of my life here, starting from scratch with very little capital in 1985, 3 people and a 300 sq. foot office,” reminisced Kotak in the private sector lender’s latest annual report.

    He emphasised that the group is at the right place at the right time.

    “We are a quintessential product of the India growth story and the financial sector evolution. We are a quintessential product of the India growth story and the financial sector evolution.

    “We have created value for stakeholders and now provide about 1 lakh direct jobs and a multiple of that in indirect jobs,” the KMB chief said.

    Going forward

    Going forward, Kotak sees his role as a non-executive board governance member and a strategic shareholder with a long term perspective of nurturing a world class institution.

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    “It is unusual in today’s world of banking anywhere to have an individual with about 26 per cent skin in the game with disproportionate family assets in one stock, emotionally attached to living his dream of making India proud.

    “I am confident that the alignment and commitment of the shareholders, board and the management will navigate us through the changing times. And of course, dealing with the ever-evolving regulatory and policy landscape,” he said.

    Avoid accident-free roads mindset

    Kotak observed that the turbulent period post 2008 saw the Indian financial sector experiencing many crises till about 2020. That has created a certain backdrop.

    “We must avoid a mindset that we want accident-free roads hence we will restrict cars. Instead, to take this analogy further, we need more roads, more cars and better signals and traffic regulation.

    “Accidents have to be minimised and managed, and cannot be eliminated without having a significant impact on growth aspirations. The policy and regulatory framework needs to be aligned with this,” he said.

    Prevent bureaucratisation of financial services

    Kotak underscored that entrepreneurship must be allowed thrive and he was fortunate to see this in most of his career.

    “There is a need to build regulatory trust which requires action on both sides of the aisle. I feel the financial sector players risk becoming more robotic, curbing the entrepreneurial flair since the fear of making a mistake overrides the joy of creation and development.

    “While we need ‘Arjuna’s eye’ on risk management, we must prevent bureaucratisation of financial services,” he said..

    KMB, together with its subsidiaries, is a diversified financial services group providing a wide range of banking and financial services including Consumer Banking, Commercial Banking, Treasury and Corporate Banking, Investment Banking, Stock Broking, Vehicle Finance, Advisory Services, Asset Management, Life Insurance and General Insurance..

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  • Don’t want to list arms, Kotak Bank stock to reflect Group value: KVS Manian

    Don’t want to list arms, Kotak Bank stock to reflect Group value: KVS Manian

    Kotak Mahindra Bank doesn’t want to list any of its subsidiaries and wants the bank’s shares to reflect the integrated value of the Kotak Group, according to Whole Time Director KVS Manian.

    “We have followed a philosophy that we don’t want to list our subsidiaries, we want to see Kotak Bank stock as the integrated one single play across financial services,” Manian told businessline.

    Asked if he thinks the bank’s stock is then adequately priced and understands the thinking of the Group, Manian said that markets determine stock prices in their own ways and eventually the stock will find its price.

    “From a business strategy point of view, we are doing the right things. Over a period of time the markets will take care of valuation,” he said.

    Shares of Kotak Bank ended 1.7 per cent lower on Wednesday at ₹1,724.35 on the NSE. The stock has seen steady correction since November 2022, which has kept valuation below the 52-week high of ₹1,997.55.

    Strong upside

    However, analysts predict strong upside in the stock in 2023, with an average price target of ₹2,225. This includes a wide range of estimates with ICICI Direct and HDFC Securities suggesting a price target of around ₹2,170 to Jefferies and ICICI Securities pegging it as high as ₹2,400, following the recent acquisition of microfinance company Sonata Finance.

    Manian added that the bank is not planning to raise any capital in the near term as none of the key subsidiaries require any growth capital.

    “We don’t need more capital in most of our key subsidiaries for their growth. They are adequately capitalized. The bank is well capitalized,” he said.

    Kotak Securities, Kotak Mahindra General Insurance, Kotak Mahindra Capital, Kotak Mahindra Prime, Kotak Mahindra Life Insurance, Kotak Mahindra Asset Management, Kotak Investment Advisors and BSS Microfinance are the domestic subsidiaries of the private sector lender in addition to the international subsidiaries under Kotak International Business.

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