Kotak Mahindra Bank’s stock price dropped by over 10% on April 25th, a day after the Reserve Bank of India’s restricted the bank from signing up new customers through online or mobile channels and issuing new credit cards.
Ahead of the start of the trading session in morning, analysts believed RBI’s move could negatively impact the bank’s retail business and investor confidence. They were proven right as the bank’s shares fell sharply in early trading. As the time of market close, the bank’s share price was down 10.85% to Rs 1643 each on BSE.
Analysts predicted these restrictions will likely affect Kotak Mahindra Bank’s business growth. Specifically, they expected a negative impact on the bank’s Current and Saving Account Ratio (CASA ratio), which has already dropped by 13% to around 48%.
This decline, along with challenges in acquiring new credit card customers, is anticipated to hurt the bank’s earnings in the medium term. Additionally, the regulatory issues could delay any potential improvement in the bank’s performance, especially after recent management changes.
Also Read: Why RBI Barred Kotak Mahindra Bank From Issuing New Credit Card, Adding Customers Online
Consequently, Emkay Global has downgraded its rating on the bank’s stock from ‘Add’ to ‘Reduce’ and lowered its target price to Rs 1,750 per share from Rs 1,950.
The RBI banned Kotak Mahindra Bank due to significant gaps in its digital and security systems over the past two years. Following this, Jefferies, which previously had a ‘hold’ rating on the bank, reduced its target price to Rs 1,970 per share from Rs 2,050.
Jefferies compared this situation to HDFC Bank’s similar regulatory issues in 2020, which took about nine to 15 months to resolve. If Kotak Mahindra Bank’s issues linger for more than six months, it could impact both its revenues and costs, according to Jefferies. Despite this, Jefferies is maintaining its ‘Hold’ recommendation for Kotak Mahindra Bank shares.
Corrective Action
In a statement filed with the stock exchange, Kotak Mahindra Bank assured its customers that it’s actively improving its IT systems with new technologies. The bank is working closely with the RBI to quickly address any issues.
Existing customers can expect their services, including credit cards and online banking, to continue without interruption.
The RBI-imposed restrictions on Kotak Mahindra Bank will remain in place until the bank completes an external audit and implements corrective measures to the satisfaction of the RBI, a process that might take 6-12 months. The RBI will review the actions taken by the bank once the audit and resolution process is completed.
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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing in market-linked instruments.
