Kotak Mahindra Bank Share Plunges 10% on RBI Action

Kotak Mahindra Bank’s shares plummeted by 10% following punitive measures imposed by the Reserve Bank of India (RBI), which restrict the bank from onboarding new customers online and issuing fresh credit cards due to IT system deficiencies in 2022 and 2023.

RBI Restrictions and Analyst Insights

The RBI’s directive is anticipated to negatively impact the bank’s growth and margins, as highlighted by analysts. They speculate that the restrictions may be revisited post an external audit and corrective action plan, a process expected to span 6-12 months.

Kotak Mahindra Bank’s Response

Despite the setback, Kotak Mahindra Bank remains confident that the directives will not significantly affect its overall operations. The bank reassures existing customers of uninterrupted services while affirming its commitment to swiftly resolve IT system issues.

Impact on Growth and Valuation

Analysts foresee a challenging period for Kotak Mahindra Bank, with potential declines in business growth and valuation premia due to governance concerns. The inability to cross-sell products, particularly credit cards, via online channels, is expected to hinder its operations structurally.

Analysts’ Recommendations

Analysts recommend caution for investors in the short term and advise existing investors to hold positions, with key support levels identified around ₹1,600. The resolution process, if prolonged beyond six months, could further impact the bank’s revenues and costs.