Shares of Kotak Mahindra Bank share plunged as much as 10% during early trading on Thursday following the Reserve Bank of India’s directive to halt the issuance of fresh credit cards and onboarding new clients through digital channels. This decline marks the sharpest single-day drop for the stock since March 23, 2020.
On Wednesday, the RBI instructed Kotak Mahindra Bank to immediately cease onboarding new customers via online and mobile banking channels and issuing fresh credit cards. This action comes as a result of identified deficiencies in the bank’s IT system during the years 2022 and 2023.
Despite these regulatory directives, Kotak Mahindra Bank remains confident that they will not significantly impact its overall business.
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In a filing to the stock exchange the bank said “The Bank has taken concrete steps to adopt new technologies to strengthen its IT systems and will continue to work with RBI to swiftly resolve balance issues at the earliest. The Bank would like to reassure its existing customers of uninterrupted services, including credit card, mobile and net banking.”
Although the bank’s branches will continue to onboard new customers and provide all services except for the issuance of new credit cards, analysts express concerns about potential repercussions.
Analyst on Kotak Mahindra Bank
According to Shreyansh Shah, Research Analyst at StoxBox, the RBI’s actions may significantly impede Kotak Mahindra Bank’s ability to cross-sell products, particularly due to its heavy reliance on online channels for acquiring new retail customers.
Shah further explained that given the bank’s lower branch network compared to larger private banking peers, this could structurally prove detrimental to its overall operations.
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He highlighted that with unsecured lending, especially credit cards, being a focal point for most banks, Kotak Mahindra Bank may miss out on opportunities to incorporate these high-yield and burgeoning products into its overall portfolio.
Moreover, Shah expressed concerns regarding the bank’s valuation premiums, attributing the decline partly to Uday Kotak’s earlier departure and potential governance issues.
Shah advised investors to exercise caution in the short term and wait for the situation to stabilize before considering new positions. For existing investors, Shah recommended maintaining positions with key support levels around Rs 1,600 on a weekly closing basis.
(Disclaimer: Views, recommendations, opinion expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)
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