Kotak Mahindra Bank faces a significant challenge following the Reserve Bank of India’s (RBI) recent directive to halt digital onboarding of new customers.
This move, aimed at addressing concerns over IT risk management, is projected to have a substantial impact on the bank’s operating profit, potentially amounting to a drop of Rs 300-500 crore.
This estimation, provided by the bank, factors in the anticipated reduction in new credit card sign-ups and the expected rise in information technology expenses.
However, there are also anticipated savings on customer acquisition costs, albeit insufficient to fully counterbalance the projected profit decline.
Ashok Vaswani, managing director and chief executive, revealed during an analyst call that the projected impact on profit-before-tax (PBT) for the fiscal year 2025 is estimated to be in the range of Rs 300-450 crore.
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Vaswani emphasised that while the regulatory action might pose challenges, its financial repercussions are manageable.
He clarified that the ban solely affects the bank’s ability to onboard new customers digitally, allowing existing customers to continue their banking activities without disruption.
The CEO outlined the bank’s strategy to navigate through the constraints, focusing on strengthening relations with existing customers through cross-selling rather than pursuing new acquisitions.
Also Read: Why RBI Barred Kotak Mahindra Bank From Issuing New Credit Card, Adding Customers Online
The RBI’s decision, announced late last month, saw Kotak Mahindra Bank’s shares plummeting by as much as 12 per cent at the Bombay Stock Exchange (BSE) on April 25, 2024. Brokerages responded cautiously, revising down target prices, expressing concerns about the long-term impact on the bank’s operations.
Vaswani, drawing on his technology background, explained that the financial impact is mitigated by the high acquisition costs exceeding revenue during the initial year of customer onboarding.
He highlighted the need to reprioritize technology spending in light of the regulatory constraints.
Furthermore, Vaswani clarified that not all customer onboarding processes are digital, with some involving physical assistance, which remains unaffected by the RBI’s restrictions.
In the January-March quarter, Kotak Mahindra Bank reported a robust performance with a net profit increase of 18 percent year-on-year to Rs 4,133 crore. Net interest income also witnessed a healthy growth of 13 percent year-on-year, reaching Rs 6,909 crore.
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