Kotak Mahindra Bank's share price fell 10% in early trading on Thursday following the Reserve Bank of India's (RBI) punitive proceedings against it. Kotak Mahindra Bank shares fell as much as 10% to ₹1,658.75 on the BSE.
The RBI told Kotak Mahindra Bank on Wednesday to stop onboarding new clients through its online and mobile banking platforms and issuing new credit cards, effective immediately. The central bank has blocked the private sector lender from issuing new bonds in 2022 and 2023 owing to inadequacies in the firm's information technology system.
Kotak Mahindra Bank feels that these directives will not substantially affect its overall operations.
"The Bank has made tangible efforts to enhance its IT systems by implementing new technology, and we will continue to engage with the RBI to fix balance concerns as soon as possible. In a stock exchange statement, Kotak Mahindra Bank stated that it would want to reassure its existing clients that its services, including credit card, mobile, and online banking, will continue uninterrupted.
The bank's branches would continue to welcome new clients, offering them all of the bank's services with the exception of the issuing of new credit cards, it said.
Analysts feel the RBI regulations will have a negative influence on Kotak Mahindra Bank's development. They expect the limits to be reconsidered after the external audit and remedial action plan have been completed to the satisfaction of the RBI, which generally 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 new card acquisition. This will lead to earnings being hit in the medium term." Furthermore, the regulatory overhang would postpone any possibility of a re-rating following the recent management transition," said Anand Dama, Senior Research Analyst at Emkay Global Financial Services.
The firm downgraded Kotak Mahindra Bank's stock recommendation to 'Reduce' from 'Add' and reduced the share price objective to ₹1,750 per share from ₹1,950 before.
Shreyansh Shah, Research Analyst at StoxBox, feels the RBI move will significantly limit the bank's capacity to cross-sell goods given its reliance on online channels for new retail customer acquisition.
"Given its smaller branch network compared to other bigger private banking counterparts, it would have a fundamental detrimental impact on its overall operations. With unsecured lending, particularly credit cards, becoming significant focal areas for most banks, Shah believes Kotak Mahindra Bank will miss out on the potential to add the high-yielding and rising product to its total mix.
Shah also feels that Kotak Mahindra Bank's valuation premia, which have already declined following Uday Kotak's departure, may suffer in the future due to its robust governance measures.
"We encourage investors to exercise caution in the short term and wait for the dust to settle before taking fresh holdings. We urge current investors to keep holdings with crucial support levels around ₹1,600 on a weekly closing basis," he said.
Citi analysts anticipate that the RBI's decision will harm the lender's growth, net interest margin (NIM), and fee income.
Kotak Mahindra Bank distributed over 95% of new credit cards and 99% of new personal loans online in the quarter that concluded in December 2023. Furthermore, 76% of accounts for fixed deposits or recurring deposits and 90% of new investments were formed online. According to Citi, the bank's credit card portfolio accounted for 3.7% of advances.
Jefferies stated that the lender's earnings and expenses would be impacted if the Kotak Mahindra Bank resolution takes longer than six months. The firm kept its recommendation on Kotak Mahindra Bank shares at "Hold."
At 9.20 am, the BSE saw shares of Kotak Mahindra Bank down 10% at ₹1,658.75 per.
.jpg)
