The top brass at Kotak Mahindra Bank has been scrambling to soothe the jangling nerves of customers, investors, employees and partners in the financial system after the Reserve Bank of India delivered its thunderbolt on Wednesday barring the bank from taking on new clients through digital channels and halting the issue of fresh credit cards.
“We are working to address the concerns raised (by the RBI) and are in constant communication with the regulator to resolve any issues promptly,” Ashok Vaswani, MD & CEO of Kotak Mahindra Bank, said in a letter to customers which the bank shared on X.
The sudden turn of events, however, spooked the stock markets. Investors clobbered the stock which swooned over 12 per cent in a frenetic bout of trading in the morning to a 52-week low of ₹1,620, sharply down from Wednesday’s close of ₹1,843.05.
The bank’s market capitalisation sank by ₹ 39,768.36 crore to ₹3,26,615.40 crore at the close of trading with the stock settling at ₹1643 on the BSE, down by 10.85 per cent.
On Wednesday, Kotak Mahindra Bank tried to downplay the impact of the RBI action on its financials when it said, “the bank believes that these directions will not materially impact its overall business’’.
“We hold ourselves to the highest standards and remain dedicated to serving you with excellence,” Vaswani said in a letter to existing customers.
However, analysts at brokerages remained deeply sceptical of Kotak Bank’s assertion with many reckoning that it would take at least nine to 15 months before it would be permitted to shake off the fetters that the regulator had placed for failing to put its house in order despite several warnings over the past two years.
Analysts at Emkay said the restrictions would be reviewed upon completion of an external audit and the framing of a corrective action plan to RBI’s satisfaction, which typically takes 6-12 months.
“Such restrictions should impact business growth, including Kotak Bank’s already dwindling CASA ratio (down 13 per cent from its peak to 48 per cent) and its new card acquisition; this will lead to earnings being hit in the medium term. Additionally, the regulatory overhang would delay any hope of a re-rating post the recent management change,” they added.
CASA stands for current account and savings accounts, which represents the cheapest source of funds for banks. The bank pays no interest on current accounts and just 3.5 per cent on savings accounts.
During the third quarter, the bank’s CASA ratio stood at 47.7 per cent. It stood at 52.8 per cent at the end of March 31, 2023. The brokerage slashed the rating for the bank to “reduce” from “add” and reduced the target price to ₹1,750 per share from ₹1,950 per share.