Kotak Mahindra Bank shares plummeted by up to 10% in early Thursday trading, triggered by the Reserve Bank of India’s directive to halt the issuance of new credit cards and onboard new clients via digital channels. This decline represents the steepest single-day drop for the stock since March 23, 2020.
Wednesday saw the RBI instruct Kotak Mahindra Bank to promptly halt the onboarding of new customers through online and mobile banking channels, as well as the issuance of new credit cards. This directive follows the identification of deficiencies in the bank’s IT system during the years 2022 and 2023.
Despite these regulatory directives, Kotak Mahindra Bank maintains confidence that they will not have a significant impact on its overall business.
In a statement submitted to the stock exchange, the bank stated, “The Bank has implemented tangible measures to embrace new technologies, fortifying its IT systems, and remains committed to collaborating with the RBI to promptly address outstanding issues. The Bank wishes to reassure its current customers of seamless services, encompassing credit card, mobile, and net banking.”
While the bank’s branches will continue to onboard new customers and offer all services except for issuing new credit cards, analysts voice concerns about potential repercussions.
Kotak Mahindra Bank analyst
As per Shreyansh Shah, Research Analyst at StoxBox, the RBI’s actions could substantially hinder Kotak Mahindra Bank’s capacity to cross-sell products, especially considering its strong dependence on online channels for acquiring new retail customers.
Shah elaborated that the bank’s smaller branch network in comparison to larger private banking peers, could structurally harm its overall operations.
He emphasized that with unsecured lending, particularly credit cards, being a central focus for most banks, Kotak Mahindra Bank might overlook opportunities to integrate these high-yield and expanding products into its overall portfolio.
Furthermore, Shah voiced concerns about the bank’s valuation premiums, suggesting that the decline could be partially attributed to Uday Kotak’s earlier departure and potential governance issues.
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Shah cautioned investors to be prudent in the short term and suggested waiting for the situation to stabilize before contemplating new positions. For current investors, Shah advised maintaining positions, noting key support levels around Rs 1,600 on a weekly closing basis.
