Kotak Mahindra Bank Shares Tank 10% Following RBI Curbs; Analysts Slash Ratings and Target Prices

The RBI move could negatively affect Kotak Mahindra Bank's retail operations and investor sentiment, according to analysts

At 11 am, shares of Kotak Mahindra Bank are trading at Rs 1,658.20 apiece, down 10.03 per cent, on the BSE.

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Kotak Mahindra Bank's shares witnessed a sharp decline of 10 per cent on April 25 (Thursday), following the Reserve Bank of India's (RBI’s) decision to prohibit the bank from onboarding new clients through online channels and issuing credit cards. The central bank's move could negatively affect Kotak's retail operations and investor sentiment, analysts suggest.

The stock plunged 12.10 per cent to its 52-week low of Rs 1,620 on the BSE. At the NSE, it tumbled 13 per cent to the 52-week low of Rs 1,602.

Following this, the lender's market capitalisation (Mcap) eroded by Rs 37,720.8 crore to Rs 3,28,662.96 crore.

The RBI on Wednesday said, “These actions are necessitated based on significant concerns arising out of Reserve Bank’s IT Examination of the bank for the years 2022 and 2023 and the continued failure on part of the bank to address these concerns in a comprehensive and timely manner."

At 11 am, shares of Kotak Bank are trading at Rs 1,658.20 apiece, down 10.03 per cent, on the BSE. 

Macquarie considers the RBI's restrictions a major blow to Kotak Bank, given its dependence on digital platforms for attracting customers. Kotak has benefited from a large number of savings accounts opened through its 811 digital platform, with most unsecured products also handled digitally. The digital segment has seen remarkable growth of 40 per cent year-on-year, surpassing the overall growth rate of 18 per cent.

Citi analysts also predict that the RBI's decision will hurt the bank's growth, net interest margin (NIM), and fee income. The brokerage maintains a 'neutral' rating on the stock, setting a target price of Rs 2,040 per share.

In announcing the ban, the RBI cited significant shortcomings in Kotak's digital and security platforms over the last two years. In response to the ban, Jefferies, which holds a 'hold' rating on the bank, lowered its target price to Rs 1,970 per share from the previous Rs 2,050.

Jefferies stated that the RBI's actions will be reviewed upon completion of the audit and resolution process.

The central regulator cited serious deficiencies in the bank's IT infrastructure, including IT inventory management, patch and change management, user access management, vendor risk management, data security, and business continuity and disaster recovery protocols. The central bank also noted that KMB had been found deficient in IT risk and information security governance for two consecutive years, falling short of regulatory requirements.

“For two consecutive years, the bank was assessed to be deficient in its IT Risk and Information Security Governance, contrary to requirements under Regulatory guidelines,” RBI noted.