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Informist, Friday, Feb. 21, 2025

 

--S&P Global Ratings ups Kotak Bank's credit profile to 'bbb' from 'bbb-' 

 

MUMBAI – S&P Global Ratings has upgraded Kotak Mahindra Bank's standalone credit profile to 'bbb' from 'bbb-' as the rating agency expects the bank to see a healthy growth after the Reserve Bank of India earlier this month lifted certain restrictions on it. 

 

"We believe Kotak Mahindra Bank is well positioned for growth over the next 24 months," the rating agency said in a press release Thursday. "This is after India's central bank lifted restrictions on the bank onboarding new customers or issuing fresh credit cards. We have therefore removed the negative comparable rating analysis adjustment under our comparative rating analysis on the private sector bank."

 

On Feb. 12, the RBI lifted restrictions on Kotak Mahindra Bank, after being satisfied with the remedial measures taken by it. In April last year, the banking regulator had barred Kotak Mahindra Bank from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards after an examination of the bank's information technology infrastructure had raised "significant concerns", with the bank also repeatedly failing to address the issues raised by the RBI.

 

S&P Global Ratings also affirmed its 'BBB-" long-term and 'A-3' short term issuer credit ratings on Kotak Mahindra Bank. The outlook on the long-term ratings was kept positive. 

 

With the expectation that the bank will maintain strong capitalisation, its good risk management and strengthened technological infrastructure is likely to support growth, particularly in new credit card issuances and digital onboardings, the rating agency said.

 

Last year, when the RBI had imposed certain restrictions on the private sector lender, it had said that "in the absence of a robust IT infrastructure and IT Risk Management framework, the bank's Core Banking System and its online and digital banking channels have suffered frequent and significant outages in the last two years, the recent one being a service disruption on Apr. 15, 2024, resulting in serious customer inconveniences."

 

After the ban on credit card issuances was lifted earlier this month, the rating agency expects bank's margins to improve. Amid restrictions, the bank diverted its focus towards low-yielding secured products, which led to a contraction in its credit card portfolio by about 3% in Apr-Dec. In 2023-24 (Apr-Mar), credit card portfolio of the bank grew 44%, the rating agency said. 

 

Further, while delinquencies have picked up in the credit card segment in Apr-Sept, "the bank's strengthened underwriting and recalibration of its risk framework should support asset quality in this segment," S&P Global Ratings said. The rating agency expects the bank's pre-diversificaion risk adjusted capital ratio to remain above 10%.

 

As the bank can now onboard customers digitally, it will help increase low-cost digital deposits, and enhance its deposit franchise. As of Dec. 31, the current account savings account of Kotak Mahindra Bank stood at 42.3%. In the quarter ended December, the private sector lender had clocked a net profit of INR 33.05 billion, up about 10% on year. It was slightly lower than what most analysts had expected.

 

S&P Global Ratings said that Kotak Mahindra Bank's rating was capped at 'BBB-', the sovereign rating of India. Any change in the sovereign rating of India will lead to a similar change in the private sector lender's rating, the ratings agency said. At 1041 IST, shares of Kotak Mahindra Bank traded 1.4% lower at INR 1,943.55 on the National Stock Exchange.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Sourabh Kumar

Edited by Tanima Banerjee

 

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