Kotak Mahindra Bank Faces Setback with 10% Share Price Drop Due to RBI’s Directives

Kotak Mahindra Bank‘s share price took a substantial hit today, plummeting by 10% following the Reserve Bank of India’s (RBI) directives. The BSE witnessed Kotak Mahindra Bank shares decline significantly to ₹1,658.75 apiece.

The RBI, in a move to penalize the private sector lender, instructed Kotak Mahindra Bank to halt the onboarding of new customers through its online and mobile banking channels. Additionally, the central bank prohibited the bank from issuing fresh credit cards, citing deficiencies in its IT system in 2022 and 2023.

Kotak Mahindra Bank remained confident that these directives would not have a substantial impact on the overall business operations. Assuring existing customers of uninterrupted services, the bank clarified that its branches would continue catering to new customers but would not be issuing new credit cards.

Analysts have raised concerns over how the RBI’s restrictions could affect Kotak Mahindra Bank’s growth prospects. They anticipate a slowdown in business growth, particularly in the bank’s CASA ratio and new credit card acquisitions. The impact is expected to linger in the medium term, affecting the bank’s earnings trajectory.

Anand Dama, a Senior Research Analyst at Emkay Global Financial Services, downgraded the stock to ‘Reduce’ from ‘Add’ and revised the price target downwards on Kotak Mahindra Bank shares. The analyst highlighted the immediate challenges the bank would face in nurturing customer relationships due to the imposed restrictions.

Shreyansh Shah from StoxBox also expressed apprehension regarding Kotak Mahindra Bank’s ability to cross-sell products, a key segment for the bank’s growth strategy. The limitations on digitally onboarding new customers are forecasted to negatively impact the bank’s overall performance, raising concerns about future valuation.

The analytical views were echoed by Citi analysts, who emphasized the adverse effects on Kotak Mahindra Bank’s growth, net interest margin, and fee income due to the RBI’s intervention. Jefferies maintained a ‘Hold’ call on the bank’s shares, cautioning investors about the potential revenue and cost implications if the resolution process extends beyond six months.

In the wake of these developments, Kotak Mahindra Bank shares spiraled downwards by 10% to ₹1,658.75 on the BSE, prompting market observers to closely monitor the bank’s performance as it navigates through the regulatory challenges.