The Reserve Bank of India (RBI) has lifted the restrictions it previously imposed on Kotak Mahindra Bank (KMB), enabling the private lender to resume onboarding new customers through its online and mobile banking channels, as well as issuing new credit cards. This decision marks a significant turnaround for the bank, allowing it to expand its digital services and customer base once again.
The restrictions were initially enforced on April 24, 2024, following serious non-compliance issues identified during the RBI's IT examination of the bank. The RBI cited Kotak Mahindra Bank's inability to meet IT risk and security standards for two consecutive years, leading to repeated outages of its Core Banking System (CBS) and online banking channels. The central bank noted, "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."
According to the RBI's press release, dated February 12, 2025, the decision to lift the restrictions followed Kotak's submission of compliance reports and the commissioning of an external audit to validate the measures taken. The RBI stated, "Having satisfied itself based on the submissions and remedial measures undertaken by the bank, the Reserve Bank has decided to lift the aforementioned restrictions placed on KMB."
Following the announcement, Kotak Mahindra Bank's shares rose by 2.25%, reaching an intra-day high of Rs 1,987.70 on the BSE. Brokerage firms have reacted favorably to this news. For example, HSBC has maintained its 'Buy' rating on Kotak with a raised target price of Rs 2,210, seeing the lifting of restrictions as beneficial for the bank's customer acquisition and earnings outlook.
JP Morgan also expressed its optimism, maintaining its 'Overweight' rating and setting a target price of Rs 2,100. Analysts noted the previous slowdown in customer acquisitions and credit card additions but expect the new digital onboarding capabilities to drive growth. They pointed out, "With the revamped digital app and the potential peaking of credit card slippages at the system level, we anticipate Kotak Mahindra Bank will prioritize acquisitions, driving unsecured growth."
Similarly, Morgan Stanley reiterated its 'Overweight' rating with a target price of Rs 2,290, highlighting Kotak's strong starting profitability compared to its peers. They believe the removal of the restrictions positions the bank for accelerated growth, particularly within its credit card segment.
On February 13, 2025, as trading continued, Kotak's share price climbed to Rs 1,982.1 amid broader market activity. All around, investors were encouraged by the bank's commitment to digital expansion and the positive outlook from analysts.
Nomura India also weighed in on the development, maintaining its 'Buy' rating and setting the target price at Rs 2,110. The brokerage firm emphasized the potential for increased growth in the credit card segment, which had previously suffered due to the restrictions. Nomura noted, "We expect KMB to push for growth in the credit card segment, which should provide support to NIMs and fee income. Customer acquisition should also gather pace, driven by the resumption of digital onboarding."
Motilal Oswal Financial Services, echoing similar sentiments, praised the bank's management for effectively addressing compliance requirements, stating, "The lifting of the ban also ratifies the bank's resilience as well as the efficacy and strategic foresight of the new management team." They maintain their price target of Rs 2,200 for the stock, confident about the bank's prospects post-restrictions.
Despite the lifted restrictions, Kotak Mahindra Bank's credit card segment has faced challenges over the past year. The number of outstanding credit cards decreased from 60 lakh to 50 lakh from April 2024 to December 2024. This decrease has contributed to the bank losing market share, with the report indicating Kotak now holding only 4.6% of the market for cards. Nevertheless, analysts believe the bank is well-situated to recapture growth momentum.
While Kotak Mahindra Bank has reversed the course of its recent challenges, analysts remain cautious about the broader economic environment. The current rate-cut conditions may exert some pressure on net interest margins (NIM) due to quicker repricing of loans relative to deposits; nevertheless, they expect this will be offset by high-yielding loan growth.
With the bank taking substantial steps to resolve earlier issues, investors remain hopeful about its future performance. The RBI lifting of restrictions not only restores access to digital and credit card channels but also reinforces confidence in Kotak's compliance and operational improvements.
Looking ahead, it is anticipated Kotak Mahindra Bank will amplify its customer acquisition efforts and continue to expand its digital banking offerings. This renewed focus remains integral, especially as the bank aims to capture market share previously lost during its period of restrictions.