Kotak Bank's credit profile to improve over next 12 months: S&P

In April, the Reserve Bank of India (RBI) had barred Kotak Mahindra Bank from issuing fresh credit cards and boarding new customers online.

Kotak Mahindra Bank will be able to improve its credit and funding profile over the next 12 months despite some impact on growth and profitability because of the RBI's restriction on onboarding new customers online, S&P Global Ratings credit analyst Nikita Anand said on Friday.

In April, the Reserve Bank of India (RBI) had barred Kotak Mahindra Bank from issuing fresh credit cards and boarding new customers online.

Anand said S&P's base case assumption is that the bank should be able to manage the impact on its credit profile and the lender has made significant progress on tech enhancement in last 18 months, which includes the hiring of senior level executive like the Chief Technology Officer.

However, it will take time for the bank to implement the changes highlighted by the RBI and conduct a comprehensive external audit to address the RBI's concerns, she said.

"Nonetheless, it remains an overhang on the bank's credit profile over the next 12 months or so... We believe the next 12 months or so, we should be able to remove the negative adjustments and the bank should be able to manage the credit profile in general and funding profile in particular, notwithstanding some impact on growth and proiftability," Anand said in a webinar.

S&P has a standalone credit profile (SACP) assessment of 'BBB-' on Kotak Mahindra Bank and that includes the negative adjustment for the RBI's action.

"We believe the restriction could affect the bank's credit and deposit growth and profitability. Credit cards are a higher yielding target growth segment for the bank and they were growing at over 50 per cent compared to loan growth of 19-20 per cent. So, there will be some impact on growth," Anand said.

However, credit cards make a small portion of total loans at 4 per cent. Also, the bank is not restricted from cross-selling products to existing customers.

Besides, the share of customers onboarded online was generally on the lower side compared to the overall new customer onboarding, Anand said.