The uncertainty over Uday Kotak’s successor is taking a toll on the valuations of Kotak Mahindra Bank, which have fallen below Covid lows even as its premium on the bourses over key rivals has narrowed considerably.

There are just days to go before a successor to Kotak is in place: he had resigned with effect from September 1 as the bank’s managing director and CEO, four months ahead of his scheduled retirement on December 31.

However, the Reserve Bank of India approved the appointment of Dipak Gupta, the bank’s joint MD, as the interim head for two months till the end of October.

According to analysts at Jefferies, Kotak Mahindra Bank’s core banking valuations — it has other businesses such as asset management and life insurance on a consolidated basis — have fallen below Covid levels and its premium to rivals such as HDFC Bank and ICICI Bank has narrowed down to 13 per cent from a premium of 30 per cent.

Jefferies’s analysts considered the bank’s forward price-to-book-ratio — the extent market cap is at a premium to the book value of the shares — and the price-earnings ratio — the extent to which share price is at a premium to earnings per share.

“In the backdrop of these issues, Kotak Bank’s core banking valuations have de-rated to 2.5 times (lower than the Covid low of 2.9 times) 12-month forward adjusted PB (price-to-book) and 18 times adjusted PE (price earnings ratio). These are below Covid-low levels,” the analysts said.

“KMB’s premium to HDFC Bank and ICICI Bank has narrowed to 13 per cent now. Kotak Bank used to trade at a premium of 30 per cent plus on average to HDFC Bank for 3-5 years before the merger between HDFC Bank-HDFC Ltd was announced.’’

“While the bank has submitted to the RBI the names of candidates for the appointment as CEO, the market is watching out for whether the RBI is okay with internal succession (K.V.S. Manian and Shanti Ekambaram are top contenders and good potential successors, in our view) or if it prefers external leaders.”