RBI’s Action Against Kotak Mahindra Bank Sends Shockwaves Through Market

Kotak Mahindra Bank faced a significant setback in the market as its share price plummeted by 10% following the recent actions by the Reserve Bank of India (RBI). The central bank directed Kotak Mahindra Bank to halt onboarding new customers via its online and mobile banking platforms and refrain from issuing fresh credit cards immediately.

In response to the RBI’s directives, Kotak Mahindra Bank assured its existing customers of uninterrupted services across credit cards, mobile banking, and net banking. The bank clarified that while onboarding new customers and issuing fresh credit cards through online channels will cease temporarily, services through physical branches will remain operational.

Analysts at Emkay Global Financial Services expressed concerns regarding the impact of these RBI restrictions on Kotak Mahindra Bank’s growth prospects. They anticipate that the negative repercussions could extend to the bank’s Customer Account Services Agreement (CASA) ratio and new credit card acquisitions in the medium term.

Shreyansh Shah from StoxBox echoed similar sentiments, noting the potential hindrance to the bank’s cross-selling operations due to its heavy reliance on digital channels for customer acquisitions. Shah also highlighted the risk to Kotak Mahindra Bank’s valuation premium associated with governance practices following the exit of Uday Kotak.

Citi analysts emphasized the adverse effects the RBI’s actions may have on Kotak Mahindra Bank’s growth trajectory, net interest margins, and fee income. They pointed out that the temporary pause on new customer onboarding and credit card issuance could impact the bank’s revenue stream significantly, requiring a diligent audit and remediation process.

Jefferies maintained a ‘Hold’ rating on Kotak Mahindra Bank’s shares, underscoring the need for prompt resolution of the regulatory issues to mitigate the financial implications. In the wake of the RBI’s intervention, market volatility and investor sentiment towards the bank have heightened, signaling a challenging path ahead for the financial institution.