Kotak Mahindra Bank Shares Plummet 10% Amid Regulatory Curbs

Kotak Mahindra Bank Ltd faced a significant setback as its shares nosedived by over 10% in Thursday’s trading session, following stringent restrictions imposed by the Reserve Bank of India (RBI). The regulatory body’s decision to prohibit the private bank from enrolling new customers through its online and mobile banking channels, along with the suspension of fresh credit card issuances, triggered a sharp downturn in the stock’s performance.

The bank had been aggressively expanding its credit card business in recent years, leveraging its 811 digital strategy to amass a substantial customer base. However, the RBI’s intervention has disrupted these growth plans, leading to a rapid erosion in market confidence. Kotak Mahindra Bank currently commands a credit card market share of 5.8% in terms of card numbers and 4% in spending.

In response to these developments, Kotak Mahindra Bank shares plummeted by 10% to reach a low of Rs 1,658.75, marking a 13% decline for the year 2024 thus far.

Emkay Global downgraded its rating on Kotak Mahindra Bank to ‘Reduce’ and revised its target price downwards to Rs 1,750 from Rs 1,950, citing concerns over regulatory constraints potentially delaying any stock rerating.

The bank had been witnessing robust growth in retail products, driven by digital sourcing initiatives and a focus on unsecured lending.

Furthermore, persistent IT deficiencies, as flagged by the regulator, raise concerns about risk management and governance practices at Kotak Mahindra Bank. Amidst these challenges, analysts reiterated a neutral outlook on the stock, with a revised target price of Rs 1,900.

Uday Kotak’s Wealth Dips by ₹10,225 Crore in a Single Day

The fallout from Kotak Mahindra Bank’s share price plunge extended beyond market valuation, significantly impacting the wealth of its founder, Uday Kotak. With a 25.71% stake in the bank, Kotak saw a staggering loss of ₹10,225 crore in a single day.

Mutual funds, holding approximately 12.82% of the bank’s shares, also bore the brunt of the stock’s decline, likely incurring losses exceeding ₹5,000 crore. Similarly, insurance companies, with an 8.69% stake, including the Life Insurance Corporation of India (LIC) holding 6.46%, suffered significant wealth erosion, amounting to around ₹3,456 crore. LIC alone witnessed a wealth decline of approximately ₹2,569 crore due to the correction in Kotak Mahindra Bank’s share price.