(Bloomberg) -- Kotak Mahindra Bank Ltd.’s shares suffered their biggest loss since early June as a regulator’s ban on signing up customers to its online platforms and credit cards crimped its margins.
Shares of the Mumbai-based lender fell as much as 7.3% on Monday before recouping some losses to close 4.4% lower. Trading volumes were more than three times the stock’s three-month daily average.
The bank, founded by Asia’s richest banker Uday Kotak, was prohibited from adding customers through its digital platforms and from issuing new credit cards in April, after the Reserve Bank of India found deficiencies and non-compliance in various processes at the lender.
Net interest margin declined by 11 basis points to 4.9% and credit costs rose by 67 basis points in the September quarter despite steady growth in both its unsecured and secured loan portfolios. The lower margin was due to a slowdown in unsecured disbursements and an increase in loan slippages, which raised the cost of funds, the bank’s senior executives said on a call with reporters on Saturday.
Between 30% and 40% of the slippages were from the credit card book, according to Chief Financial Officer Devang Gheewalla. Gross non-performing assets expanded to 1.49% from 1.39% in the previous quarter, largely driven by “some stress” in the credit card business that also led to higher provisions, Gheewalla said on the call.
The bank expects its secured retail loan book to recover in the next two quarters and had taken measures to tighten credit limits and underwriting practices for their credit cards, Gheewalla said.
“We expect growth to remain muted in unsecured segment and margins to remain under pressure,” Suresh Ganapathy, head of financial services research at Macquarie Capital said in a note, citing Kotak’s “cautious” underwriting approach.
Corporate loans, accounting for 23% of its portfolio, and unsecured loans that make up 11% of its loan book, each fell 1% from the previous quarter. Kotak’s microfinance loans dropped 6% from the prior quarter, given the RBI’s ban on new credit card issuance and slower rural demand, executives said.
The bank’s second-quarter net income of 33.4 billion rupees ($397 million) fell short of analysts’ expectations of 3.2 billion rupees in a Bloomberg survey.
(Updates with closing stock price.)
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