RBI’s Regulatory Action Expected to Impact Kotak Mahindra Bank’s Profit in FY25

In a recent post-earnings analyst call, Ashok Vaswani, managing director and chief executive of Kotak Mahindra Bank, disclosed that the bank’s digital banking segment is anticipated to witness a notable decline in profit-before-tax (PBT) ranging between INR 300

to 450 Cr for the fiscal year 2025. This forecast follows the Reserve Bank of India’s (RBI) regulatory measures against the Mumbai-based lender.

Vaswani clarified the impact on the bank’s operations, stating, “We remain fully focused on mitigating the current challenges imposed on Kotak Mahindra Bank’s digital lending business. Our focus for this fiscal year will be to deepen existing customer relations through cross-selling instead of new acquisitions.”

Last month, the RBI directed Kotak Mahindra Bank to halt onboarding new customers through its online and mobile banking platforms. The central bank invoked its authority under Section 35A of the Banking Regulation Act, 1949, instructing the bank to discontinue issuing fresh credit cards and onboarding new customers digitally.

Addressing the financial implications of these restrictions, Vaswani highlighted, “For Kotak 811 and new credit card issuances, the acquisition cost is usually higher than revenue in the first year of customer onboarding. The amount of technology spent involved here is also higher, so we need to re-prioritise that.”

The RBI’s action is rooted in concerns raised during the bank’s IT examination, coupled with what the central bank perceives as the bank’s failure to promptly address these concerns. Despite the limitations on new customer onboarding, existing customers of Kotak Mahindra Bank will retain access to loans and deposits, as confirmed by Vaswani.

This is not the first instance of the RBI enforcing such measures; similar restrictions were imposed on HDFC Bank in 2020, which were subsequently lifted in 2022. The central bank has been progressively tightening regulations within the digital banking and lending domain, including the issuance of digital lending guidelines and a regulatory framework for payment aggregators.

Vaswani emphasized that while the impact is significant, the bank remains focused on sustaining its operations and servicing existing customers effectively. The strategic approach for the fiscal year entails enhancing relationships with current clients through cross-selling initiatives.