The Reserve Bank of India (RBI) has taken strict action against Kotak Mahindra Bank, citing deficiencies in its IT system. As a result, the bank’s shares nosedived by over 10% at one point in early trade on Thursday. The stock was later trading 9.69% lower at Rs 1,664.50 on the Bombay Stock Exchange (BSE) at the time of writing.
The RBI has ordered Kotak Mahindra Bank to halt onboarding new customers through its online and mobile banking channels, including the issuance of fresh credit cards. This move has raised concerns among brokerages, who have downgraded the bank’s target price, citing the potential impact on its future growth.
Brokerage firm Motilal Oswal stated that the RBI ban will disrupt the growth path of retail products and negatively affect overall margins and profitability. The firm has revised its target price for Kotak Mahindra Bank to Rs 1,900 with a ‘Neutral’ rating.
Meanwhile, brokerage firm Macquarie considers the ban imposed on Kotak Mahindra Bank a significant setback, particularly due to its heavy reliance on digital channels for customer acquisition. The brokerage anticipates a de-rating for Kotak Mahindra Bank in the medium term, similar to HDFC Bank’s experience following RBI’s regulatory action.
Citi analysts have expressed concerns that the RBI’s action will negatively affect the bank’s growth, net interest margin (NIM), and fee income. The brokerage maintains a ‘neutral’ rating on the stock with a target price of Rs 2,040 per share.
Following the ban, Jefferies, which previously held a ‘hold’ rating on Kotak Mahindra Bank, has lowered its target price to Rs 1,970 per share from Rs 2,050. The brokerage emphasized that the actions taken by the RBI will undergo reassessment following the audit and resolution process.
Emkay Global analysts anticipate that such restrictions will impact business growth, including the bank’s declining CASA ratio and its new card acquisition. Consequently, the brokerage revises its rating for the stock to ‘reduce’ from ‘add’ and lowers the March 2025 target price to Rs 1,750 per share from Rs 1,950.
Jefferies draws parallels with HDFC Bank, which faced similar regulatory action in 2020. It took HDFC Bank approximately nine to 15 months to resolve the issues. However, if the resolution process for Kotak Mahindra Bank extends beyond six months, it could potentially impact both revenues and costs for the bank.
CLSA believes that the impact of the ban on the bank’s profit is likely to be modest unless it remains in place for an extended period. The brokerage highlighted that Kotak Mahindra Bank’s digital platform ‘811’ primarily consists of low-value customers, contributing only 8% to total savings deposits. While the credit card segment is experiencing rapid growth, it only accounts for 4% of the bank’s total loan book. CLSA maintains an ‘outperform’ rating on Kotak Bank with a target price of Rs 2,100 per share.
Kotak Mahindra Bank has stated that the RBI’s action will not have a material impact on its business. However, the move has raised concerns among investors and analysts, who are closely monitoring developments to assess the potential long-term impact on the bank’s growth and profitability.
