Kotak Mahindra Bank share price tanks 10% as RBI action seen hurting growth, margins; here’s what analysts say | Stock Market News

Thu Apr 25 2024 03:46:57 GMT+0000 (Coordinated Universal Time) | www.livemint.com

Kotak Mahindra Bank share price tanked 10% in early trade on Thursday after the Reserve Bank of India’s (RBI) punitive actions against it. Kotak Mahindra Bank shares declined as much as 10% to 1,658.75 apiece on the BSE.

RBI on Wednesday directed Kotak Mahindra Bank to cease onboarding new customers through its online and mobile banking channels and issuing fresh credit cards with immediate effect. The central bank has barred the private sector lender from new issuances due to deficiencies in the bank’s IT system in 2022 and 2023. 

Kotak Mahindra Bank believes that these directions will not materially impact its overall business

“The Bank has taken concrete steps to adopt new technologies to strengthen its IT systems and will continue to work with RBI to swiftly resolve balance issues at the earliest. The Bank would like to reassure its existing customers of uninterrupted services, including credit card, mobile and net banking,” Kotak Mahindra Bank said in a stock exchange filing.

The bank’s branches will continue to onboard new customers, providing them with all the bank’s services, except issuance of new credit cards, it added.

Analysts believe the RBI restrictions would adversely impact Kotak Mahindra Bank’s growth. They expect the restrictions will be reviewed upon completion of external audit and corrective action plan to RBI’s satisfaction which typically takes 6-12 months. 

“We believe such restrictions should impact business growth, including Kotak Mahindra Bank’s already dwindling CASA ratio (down 13% from its peak to ~48%) and its new card acquisition; this will lead to earnings being hit in the medium term. Additionally, the regulatory overhang would delay any hope of a re-rating post the recent Management change,” said Anand Dama, Senior Research Analyst at Emkay Global Financial Services.

The brokerage revised its rating on the stock to ‘Reduce’ from ‘Add’, and cut Kotak Mahindra Bank share price target to 1,750 per share from 1,950 earlier.

Shreyansh Shah, Research Analyst, StoxBox believes the RBI action may severely hinder its ability to cross-sell products considering the bank’s high reliance on online channels for new retail customer acquisition. 

“Given its lower branch network compared to other larger private banking peers, it would structurally prove counter-negative for its overall operations. With unsecured lending, especially credit cards, becoming key focus areas of most banks, Kotak Mahindra Bank will lose the opportunity to add the high-yield and growing product to its overall mix,” Shah said.

Shah also believes that the valuation premia of Kotak Mahindra Bank owing to its strong governance practices may take a hit going forward which has already deteriorated following Uday Kotak’s exit earlier. 

“We advise investors to be cautious in the short term and wait for the dust to settle before making new positions. For existing investors, we would advise to hold positions with key support levels placed around 1,600 levels on a weekly closing basis,” he added.

Citi analysts believe that the RBI action would adversely affect the lender’s growth, net interest margin (NIM) and fee income. 

In the quarter ended December 2023, Kotak Mahindra Bank disbursed around 95% of new personal loans and 99% of new credit cards digitally. Moreover, 90% of new investment and 76% of Fixed Deposit or Recurring Deposit Accounts were opened digitally. The credit card portfolio of the bank constituted 3.7% of advances, Citi noted.

Jefferies said that if the resolution for Kotak Mahindra Bank takes more than six months, it could potentially impact revenues and costs for the lender. The brokerage maintained a ‘Hold’ call on Kotak Mahindra Bank shares.

At 9:20 am, Kotak Mahindra Bank shares were down 10% at 1,658.75 apiece on the BSE.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

First Published:25 Apr 2024, 09:23 AM IST