Is Kotak Mahindra Bank a Buy ?

Kotak Mahindra Bank Targets Aggressive Branch Expansion with 200 New Outlets in FY25

Private sector lender Kotak Mahindra Bank (KMB) plans to aggressively expand its brick-and-mortar presence, aiming to open 170-200 new branches in the 2024-25 financial year, according to Virat Diwanji, the bank’s Group President and Head of Consumer Banking.

Despite recent regulatory actions from the Reserve Bank of India (RBI), KMB is doubling down on its existing customer base. In April, the RBI issued a cease-and-desist order under Section 35A of the Banking Regulation Act, 1949, after identifying weaknesses in KMB’s operational risk management. This order restricts the bank from onboarding new customers through online and mobile channels and from issuing new credit cards.

The bank is setting an annual growth target of around 15-16% for its unsecured loans business, focusing on existing customers. “While we may not cover the entire shortfall due to the restrictions on digital acquisition, we are improving the productivity of our frontline staff through data analytics and providing better quality leads,” Diwanji stated.

To counteract the restrictions and grow its current account and savings account (CASA) deposits, KMB is taking multiple steps. These include enhancing customer service, ensuring customer retention, and having relationship managers engage customers to make Kotak their primary bank. Additionally, KMB has relaunched its ad campaign for Active Money, which previously boosted CASA deposits.

KMB aims to maintain its unsecured portfolio at around the mid-teens of its overall asset book. Despite the RBI restrictions, the bank plans to focus on enhancing customer engagement and loyalty programs to increase credit card usage and overall spending.

Branch expansion remains a priority for KMB, with plans to add 175-200 new branches in FY25, focusing on areas with significant business communities. The bank is targeting under-penetrated pockets and areas with easy availability of liabilities.

The mortgage segment, including home loans and loans against property, is performing well. KMB’s mortgage book surpassed Rs 1 lakh crore in March 2024, reflecting the buoyant market conditions and stable economic environment. The SME sector also shows positive results, contributing to the lending book growth.

Business banking at KMB is experiencing robust demand, growing over 25% year-on-year in Q4. The bank is investing in tier 2 and 3 cities, utilizing analytics to predict customer needs and streamline transactions. KMB is designing specific products for segments like healthcare and renewable energy, anticipating significant growth in these areas.

In conclusion, Kotak Mahindra Bank is aggressively pursuing a brick-and-mortar strategy to mitigate regulatory restrictions, focusing on existing customers and enhancing branch productivity through data-driven approaches. The bank’s comprehensive strategy aims to bolster its presence and performance in India’s dynamic finance and stock market landscape.