Kotak Bank May See Earnings, Margin Impact On RBI Crackdown, Say Brokerages

Brokerages have slashed their target price for Kotak Mahindra Bank Ltd. as the private lender's growth and interest margins could be adversely impacted due to the Reserve Bank of India's recent crackdown. Citi Research said that this led to earnings being hit in the medium term.

Jefferies India Pvt. has cut the earnings estimates and the target price of Kotak Mahindra Bank after the Reserve Bank of India found material gaps in the lender's digital and security platforms over the past two years. If resolution for the recent revelation takes over six months, it could affect revenues and costs, Jefferies said in a note.

The central bank directed the third-largest private lender by market capitalisation on Wednesday to cease and desist the issue of fresh credit cards and the onboarding of new customers through its online and mobile banking channels with immediate effect.

The bank was at the forefront of building a digitalised ecosystem revamping customer acquisition journey, Citi said in a note. "While it sounded confident of no requirement to slow down, this incident would adversely impact growth, NIM and fee income."

Emkay Global Financial Services Ltd. said such restrictions should impact business growth, including its already dwindling CASA ratio and its new card acquisition. This will lead to earnings being hit in the medium term, it said. "Additionally, the regulatory overhang would delay any hope of a re-rating post the recent Management change." 

Emkay has reduced the rating for the bank from 'add' to 'reduce' and cut the target price to Rs 1,750 per share. Jefferies maintains a 'hold' rating but has cut the target price to Rs 1,970 apiece.

• The brokerage maintains 'neutral' rating on Kotak Mahindra Bank with a target price of Rs 2,040 apiece.

• The RBI's embargo is the most unexpected outcome.

• The bank was at the forefront of building a digitalised ecosystem revamping the customer acquisition journey.

• About 95% of new PL, 99% of new CC, and 79% of new BL were disbursed digitally.

• About 90% of new investments and 76% of FD/RD accounts were opened digitally.

• Credit card portfolio constituted 3.7% of advances.

• The recent incident will adversely impact growth, NIM and fee income.

• The pace of branch expansion needs to accelerate.

• Jefferies maintains 'hold' with a target price of Rs 1,970 per share.

• Embargos to be reviewed upon audit and resolution.

• During a similar issue, HDFC Bank took nine to 15 months to resolve the problem.

• If the resolution for the recent revelation takes over six months, it could affect revenues and costs.

• Credit cards have been among the fastest growing segments. Hence, moderation of business here can impact revenue/costs.

• Trim earnings by 1–2% for FY25 to factor in potential risks.

• Investec maintains 'buy' with a target piece of Rs 2,300 per share.

• High growth in the past few quarters — both digital account openings and credit cards issued.

• Higher tech and branch costs can be offset by lower acquisition costs.

• Marginal impact on earnings due to ban on issuing fresh credit cards.

• Decline in mix will effectively impact return on assets by 2.4 bps and earnings per share by 1% in FY26.

• Any price correction will be due to multiple changes; trading at 2x P/B on FY26 basis, the downside is limited.

• The brokerage maintains 'neutral' rating, with a price target of Rs 2,070.

• We think the resolution could follow 9-15 month timeline.

• Growth impact should be relatively lower as digital customer balances tend to be low.

• The bank has a flex in other vertical businesses for growth.

• Earnings impact is difficult to ascertain at this time.

• The impact would depend on how long ban lasts.

• Assuming a 15-month overall timeline, growth impact should be contained.

• Macquarie maintain a 'neutral' rating, with a price target of Rs 1,860.

• RBI ban is a significant setback.

• Ban on digital onboarding is bound to affect growth over the medium-term.

• The duration of the ban remains key monitorable.