Kotak Mahindra Bank share price today: The Reserve Bank of India‘s (RBI) decision to temporarily halt Kotak Mahindra Bank’s onboarding of new customers through online and mobile banking channels, as well as the issuance of new credit cards, has led to a significant drop in the bank’s share price. The stock fell by up to 10% to Rs 1,659 on the Bombay Stock Exchange (BSE) on Thursday as investors reacted negatively to the news.
At 9:43 AM, shares of Kotak Mahindra Bank were trading at Rs 1,658.25, down Rs 185 or 10.03%.
The RBI’s action is expected to have a detrimental impact on Kotak Mahindra Bank’s growth, net interest margins (NIMs), and fee income in the short to medium term. Brokerages have started adjusting their target prices for the stock, acknowledging the potential challenges the bank may face in cross-selling products due to its heavy reliance on online channels for acquiring new retail customers, said an ET report.
Jefferies, a global brokerage firm, has lowered its target price for Kotak Mahindra Bank from Rs 2,050 to Rs 1,970 while maintaining a ‘hold’ rating. Similarly, Emkay Global has reduced its target price from Rs 1,950 to Rs 1,750. Macquarie, although not adjusting its targets, has recognized the RBI’s action as a “significant setback” for the bank.
Also Read | RBI bars Kotak Mahindra Bank from onboarding fresh customers via online, mobile banking; asks it to stop issuing fresh credit cards
Emkay Global stated, “The restrictions will be reviewed upon completion of external audit and corrective action plan to RBI’s satisfaction which typically takes 6-12 months. We believe such restrictions should impact business growth, including KMB’s already dwindling CASA ratio (down 13% from its peak to ~48%) and its new card acquisition (CIF growth @21% YoY/spends@34% YoY); this will lead to earnings being hit in the medium term. Additionally, the regulatory overhang would delay any hope of a re-rating post the recent Management change.”
Kotak Mahindra Bank’s relatively smaller branch network compared to its larger private banking peers is seen as a structural disadvantage, as the ban may prove counter-negative for its overall operations. The bank may miss out on the opportunity to add high-yield and growing products, such as credit cards, to its overall mix, which has become a key focus area for most banks.
Shreyansh Shah, Research Analyst at StoxBox, noted, “With unsecured lending, especially credit cards, becoming key focus areas of most banks, Kotak Mahindra Bank will lose the opportunity to add the high-yield and growing product to its overall mix. It is interesting to note that the recent actions by the RBI have come after the onboarding of new CEOs to banks (HDFC Bank and Bank of Baroda earlier).”
He mentioned that the valuation premium of Kotak Mahindra Bank, attributed to its robust governance practices, might suffer in the future. This premium has already diminished following Uday Kotak’s departure earlier.
CLSA analysts believe that the impact of the RBI ban will be modest unless the restrictions remain in place for an extended period. They noted that while credit cards are a fast-growing segment, they only contribute 4% to the bank’s total loan book. However, it is a higher-ROA business, and the profit contribution would be in the high-single digits. CITI has maintained a neutral rating on Kotak Mahindra Bank with a target price of Rs 2,040.
At 9:43 AM, shares of Kotak Mahindra Bank were trading at Rs 1,658.25, down Rs 185 or 10.03%.
The RBI’s action is expected to have a detrimental impact on Kotak Mahindra Bank’s growth, net interest margins (NIMs), and fee income in the short to medium term. Brokerages have started adjusting their target prices for the stock, acknowledging the potential challenges the bank may face in cross-selling products due to its heavy reliance on online channels for acquiring new retail customers, said an ET report.
Jefferies, a global brokerage firm, has lowered its target price for Kotak Mahindra Bank from Rs 2,050 to Rs 1,970 while maintaining a ‘hold’ rating. Similarly, Emkay Global has reduced its target price from Rs 1,950 to Rs 1,750. Macquarie, although not adjusting its targets, has recognized the RBI’s action as a “significant setback” for the bank.
Also Read | RBI bars Kotak Mahindra Bank from onboarding fresh customers via online, mobile banking; asks it to stop issuing fresh credit cards
Emkay Global stated, “The restrictions will be reviewed upon completion of external audit and corrective action plan to RBI’s satisfaction which typically takes 6-12 months. We believe such restrictions should impact business growth, including KMB’s already dwindling CASA ratio (down 13% from its peak to ~48%) and its new card acquisition (CIF growth @21% YoY/spends@34% YoY); this will lead to earnings being hit in the medium term. Additionally, the regulatory overhang would delay any hope of a re-rating post the recent Management change.”
Kotak Mahindra Bank’s relatively smaller branch network compared to its larger private banking peers is seen as a structural disadvantage, as the ban may prove counter-negative for its overall operations. The bank may miss out on the opportunity to add high-yield and growing products, such as credit cards, to its overall mix, which has become a key focus area for most banks.
Shreyansh Shah, Research Analyst at StoxBox, noted, “With unsecured lending, especially credit cards, becoming key focus areas of most banks, Kotak Mahindra Bank will lose the opportunity to add the high-yield and growing product to its overall mix. It is interesting to note that the recent actions by the RBI have come after the onboarding of new CEOs to banks (HDFC Bank and Bank of Baroda earlier).”
He mentioned that the valuation premium of Kotak Mahindra Bank, attributed to its robust governance practices, might suffer in the future. This premium has already diminished following Uday Kotak’s departure earlier.
CLSA analysts believe that the impact of the RBI ban will be modest unless the restrictions remain in place for an extended period. They noted that while credit cards are a fast-growing segment, they only contribute 4% to the bank’s total loan book. However, it is a higher-ROA business, and the profit contribution would be in the high-single digits. CITI has maintained a neutral rating on Kotak Mahindra Bank with a target price of Rs 2,040.