The Reserve Bank of India (RBI) issued disciplinary proceedings against Kotak Mahindra Bank, causing the bank’s share price to plunge 10% in early trade on Thursday. Kotak Mahindra Bank was instructed by the central bank to stop issuing new credit cards and to stop onboarding new customers through its online and mobile banking platforms right once. The bank’s IT system had flaws that were discovered in 2022 and 2023, which prompted this action.
Analysts believe that Kotak Mahindra Bank’s growth trajectory may be adversely affected by these limits enforced by the RBI. They opine that the limitations will probably be in force until an external audit is finished and a remedial action plan is implemented to the RBI’s satisfaction, which usually takes 6-12 months.
Even though Kotak Mahindra Bank’s development prospects have suffered, the bank is confident that it will be able to weather the storm. The bank has underlined the use of new technology to fortify its IT systems and reiterated its commitment to promptly resolving the shortcomings noted by the RBI. The bank guarantees that its current clientele will continue to get credit card, mobile, and online banking services even though it is no longer able to issue new credit cards.
Analysts are worried about how the RBI’s actions would affect Kotak Mahindra Bank’s financial results, though. They predict that the limitations may have a negative medium-term effect on the bank’s profitability, especially on its already declining CASA ratio and new card acquisition. Furthermore, the regulatory burden that follows from these actions may delay any hopes of a re-rating of the bank’s stock following recent management changes.
Emkay Global Financial Services has downgraded its share price objective and changed its rating from “Add” to “Reduce” on Kotak Mahindra Bank’s stock. Similar views are expressed by other analysts, such as those from Citi and StoxBox, on the possible harm to the bank’s fee income, growth, and net interest margin (NIM).
It is recommended that investors proceed with care in light of these developments. Analysts advise against taking up fresh equity positions in Kotak Mahindra Bank until the dust has settled. Because the duration and ramifications of the RBI’s restrictions are unpredictable, it may be smart for existing investors to keep holdings with important support levels in mind.
Market players will keep a close eye on Kotak Mahindra Bank’s response to the RBI’s orders as the situation develops and evaluate the potential effects on the bank’s long-term performance and investor sentiment.
