RBI Ban on Digital Onboarding Causes Kotak Mahindra Bank Shares to Plummet 10%

Kotak Mahindra Bank, one of India’s leading private banks, saw its share price fall by 10% after the Reserve Bank of India (RBI) temporarily halted its ability to onboard new customers through digital channels, including online and mobile banking. This restriction also affects the issuance of new credit cards. The share price drop indicates significant investor concern about the impact of this decision on the bank’s growth prospects.

The RBI’s ban is expected to hinder Kotak Mahindra Bank’s ability to attract new customers, which could impact its revenue streams, especially those tied to fee income and interest margins. The bank’s reliance on online channels for customer acquisition means that this restriction could lead to slower growth and a reduced capacity to cross-sell products, which could further impact its earnings.

Brokerage firms have adjusted their target prices for Kotak Mahindra Bank in response to the RBI’s action. For instance, Jefferies has lowered its target price from Rs 2,050 to Rs 1,970, while Emkay Global reduced its target from Rs 1,950 to Rs 1,750. Analysts at Macquarie described the RBI’s move as a “significant setback” for the bank, although they did not adjust their target price. These changes reflect the uncertainty about how long the restrictions will last and their broader impact on the bank’s operations.

Experts believe that the regulatory overhang could last for 6 to 12 months, depending on how quickly the bank can address the issues raised by the RBI. This delay in resolving the matter could impact Kotak Mahindra Bank’s business growth, especially as its branch network is smaller compared to other major private banks. This could lead to a missed opportunity for the bank to expand its high-yield products, such as credit cards, which are crucial for profitability and growth.

Shreyansh Shah, a research analyst at StoxBox, noted that the restriction could also affect the valuation premium of Kotak Mahindra Bank, historically attributed to its strong governance practices. This premium has already been impacted by the recent departure of Uday Kotak, the bank’s founder and former CEO.

Despite these challenges, some analysts believe that the impact might be modest unless the restrictions remain in place for an extended period. While credit cards are a fast-growing segment, they only make up about 4% of the bank’s total loan book, though they contribute a higher return on assets (ROA). Overall, the situation poses significant risks for Kotak Mahindra Bank’s growth trajectory, necessitating swift corrective measures to restore investor confidence and resume normal operations.