RBI action on digital lending to drag Kotak's profit by Rs 300-450 crore in FY25, says CEO & MD

Kotak Mahindra Bank's net profit rose by 18 percent year-on-year (YoY) to Rs 4,133 crore in Q4FY24

The regulatory action on Kotak Mahindra Bank's digital banking business is likely to impact its profit-before-tax (PBT) by Rs 300-450 crore in FY25, said Ashok Vaswani, managing director and chief executive in a post-earnings analyst call.

However, Vaswani emphasised that the Reserve Bank of India's (RBI's) financial impact is 'minimal' on the private lender's business as only onboarding of new customers have been barred, while existing customers can continue to take loans or make new deposits.

"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," he added.

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Late last month, the RBI banned Kotak Mahindra Bank from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards, citing deficiencies in its IT risk management.

Following the RBI action, Kotak shares crashed as much as 12 percent at BSE on April 25, 2024. Brokerages, too, turned wary and slashed target prices, viewing it as structurally negative for its overall operations.

Vashwani, who has a background in technology, explained that the financial impact is estimated to be minimum as cost of acquisition exceeds revenue in the first year of onboarding new customers.

ALSO READ: Kotak Mahindra Bank Q4 results: Net Profit soars 18% to Rs 4133 crore; NII up 13.2% YoY

"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," Vaswani said.

Apart from that, the onboarding of new customers is not entirely online, there are physical processes that involve assisted journeys, which would not be impacted, he added.

In the January-March quarter, Kotak Mahindra Bank's net profit rose by 18 percent year-on-year (YoY) to Rs 4,133 crore, while net interest income climbed by 13 percent YoY to Rs 6,909 crore.

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