Shares of Kotak Mahindra Bank experienced a sharp decline of nearly 10% on Thursday after the Reserve Bank of India (RBI) imposed a ban on the private lender, preventing it from onboarding new clients digitally. Investors expressed concerns about the potential impact this ban might have on the bank’s growth trajectory.
In pre-open trading, the company’s shares plummeted by 9.7% to 1,665 rupees, marking their lowest level since March 2023. Concurrently, the Nifty bank index also witnessed a decline of 0.86%.
The RBI’s directive, issued on Wednesday, instructed Kotak Mahindra Bank to halt the acquisition of new customers through its online and mobile banking platforms, as well as cease the issuance of new credit cards. This action was taken due to identified deficiencies in the bank’s information technology infrastructure.
Describing the RBI’s decision as a “negative surprise,” Suresh Ganapathy, an analyst at Macquarie Capital, noted that the ban is likely to impede Kotak’s growth prospects in the medium term, given the bank’s heavy reliance on digital channels.
In response, Kotak Mahindra Bank stated that it has initiated measures to adopt new technologies to bolster its IT systems and expressed confidence that the ban would not significantly impact its overall business operations.
Nevertheless, several brokerages, including Jefferies, reduced their price targets on Kotak Mahindra Bank’s stock in light of the regulatory action. Jefferies also adjusted its earnings projections for the bank downwards by 1%-2% for the current fiscal year, citing potential risks and lower valuations.
With a price-to-earnings (PE) ratio of approximately 20 times its expected earnings for the next 12 months, Kotak Mahindra Bank stands as the second-most valuable stock on the 12-member bank index, according to LSEG data. The decline in Kotak Mahindra Bank’s shares on the day widened its losses for the year to 12.7%, contrasting sharply with the 1.1% dip observed in the bank index.
