In a significant blow to Kotak Mahindra Bank, the Reserve Bank of India (RBI) has imposed restrictions on the bank's ability to onboard new customers through online and mobile banking channels, as well as issuing new credit cards. This move follows a two-year examination highlighting concerns over the bank's technology platform.
The repercussions of this regulatory action were immediately felt in the financial markets, with mutual funds suffering a collective loss of Rs 4,281 crore as the bank's stock plummeted by 10 percent. This sharp decline marks the most significant dip in Kotak Mahindra Bank's stock value since April 1, 2020.
As of March 2023, SBI Mutual Fund held the largest stake in Kotak Mahindra Bank, with approximately 7.52 crore shares valued at Rs 13,855 crore. However, in the wake of the recent developments, the value has dropped to Rs 12,600 crore, resulting in a loss of over Rs 1,200 crore. Other mutual funds such as UTI Mutual Fund, HDFC Mutual Fund, and ICICI Prudential MF have also incurred substantial losses, with UTI MF losing around Rs 486 crore, HDFC MF losing Rs 462 crore, and ICICI Prudential MF losing Rs 461 crore.
A total of 36 mutual funds hold Kotak Mahindra Bank stock, collectively owning around 25.63 crore shares valued at over Rs 47,229 crore as of March.
Analysts from various financial institutions have weighed in on the situation, expressing concerns over the bank's future prospects. Macquarie views the RBI's ban as a significant setback for Kotak Bank, particularly impacting its digital customer acquisition strategies. The bank's 811 digital platform, which witnessed a surge in savings account openings and processed various unsecured products digitally, now faces uncertainties regarding its growth trajectory.
Citi analysts anticipate adverse effects on the bank's growth, net interest margin (NIM), and fee income due to the regulatory actions. They have given a 'neutral' rating with a target price of Rs 2,040 per share. Jefferies, on the other hand, has downgraded Kotak Mahindra Bank to 'hold,' citing potential delays in resolving the issue similar to HDFC Bank's experience. They have lowered the target price to Rs 1,970 per share and warned of revenue and cost implications if the process extends beyond six months.
Looking ahead, Macquarie predicts medium-term growth challenges for Kotak Mahindra Bank, primarily due to the ban on digital onboarding and the bank's limited branch expansion. They suggest a potential de-rating of the bank's shares, akin to HDFC Bank's experience, and maintain a ‘neutral’ stance with a target price of Rs 1,860 per share.
