Investors witnessed a sharp decline in Kotak Mahindra Bank’s share price as analysts foresee adverse effects from recent Reserve Bank of India (RBI) actions. The central bank has directed the bank to halt onboarding new customers through its online and mobile banking channels, as well as issuing fresh credit cards immediately. This move follows identified deficiencies in the bank’s IT system during 2022 and 2023.
Despite these directives, Kotak Mahindra Bank reassures its existing customers of uninterrupted services, except for new credit card issuances. However, analysts express concerns over the potential impact on the bank’s growth trajectory. They anticipate a review of the restrictions following an external audit and corrective action plan, a process that typically spans 6 to 12 months.
Emkay Global Financial Services Senior Research Analyst, Anand Dama, suggests that these restrictions could dent business growth and earnings in the medium term, affecting key metrics like the CASA ratio and new card acquisitions. Consequently, Emkay downgrades the stock rating to ‘Reduce’ and revises the price target downwards.
StoxBox Research Analyst, Shreyansh Shah, highlights the potential hindrance to Kotak Mahindra Bank’s cross-selling efforts, particularly in the online retail segment, which could impact operations. The bank’s valuation premium, attributed to strong governance practices, may also face pressure, according to Shah.
Citi analysts echo similar concerns, anticipating adverse effects on growth, net interest margins, and fee income. Meanwhile, Jefferies maintains a ‘Hold’ recommendation, cautioning that a prolonged resolution process could impact the bank’s revenues and costs.
As the market responds to these developments, Kotak Mahindra Bank shares experience a 10% decline in early trading. Investors are advised to tread cautiously amid the uncertainty, with support levels closely monitored for potential market movements.
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