KOTAK LOSES FOURTH MOST VALUED BANK TAG TO AXIS

Kotak Mahindra Bank’s shares plunged by up to 13% on Thursday, wiping out nearly `40,000 crore in market value and paving the way for its rival Axis Bank to become the fourth-largest lender in terms of market capitalisation. 

The shares tanked in reaction to  several brokerages raising concerns about growth prospects after the Reserve Bank of India (RBI) on Wednesday barred the private lender from onboarding new customers via its online and mobile banking channels, and from issuing new credit cards.

Due to the heavy selloff, the bank’s founder Uday Kotak, the largest shareholder with a stake of almost 26%, saw his wealth decline by $1.3 billion, according to the Bloomberg Billionaires Index. He was worth $14.4 billion as of April 24.

Brokerages say RBI’s order will adversely affect the bank’s growth as the majority of the new business is sourced through digital channels.

“A lot of savings accounts opened through KMB’s 811 digital channel. On the asset side, a majority of sourcing of unsecured products (9.2 % mix ex-MFI) is done digitally. These segments have grown at 40% y-o-y (9MFY24) vs overall growth of 18% y-o-y,” Macquarie’s Suresh Ganapathy said in a note.

Though the credit card business comprises only around 4% of the total book, it has been growing at over 50% y-o-y, Ganapathy said, adding that on the liability front, the bulk of fixed deposits and recurring deposits are sourced digitally.

According to Macquarie, the bank’s reluctance in opening branches is also an issue — less than 350 opened in the last four years. It added that 95% of new personal loans and 99% of new credit cards were sourced digitally in the third quarter. Similarly, 90% of new investments and 76% of fixed deposits and recurring deposits were sourced digitally.

Jefferies has cut its target price for the bank to `1,970 from `2,050 but continues to retain its ‘hold’ recommendation. The brokerage said that in case the resolution takes more than six months, it can affect the lender’s revenue and costs.

Citi, which remains ‘neutral’ on the bank, said the RBI actions will adversely impact Kotak’s growth, net interest margin and fee income. “We will watch for how this matter resolves, especially considering the strongly worded nature of RBI’s release,” the brokerage said in note.

Nomura sees limited impact, but it does see a reputational impact. “We believe such restrictions should impact business growth, including KMB’s already dwindling CASA ratio (down 13% from its peak to 48%) and its new card acquisition,” said Emkay analysts in a note.

“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,” said analysts. 

Kotak Mahindra Bank’s share closed at Rs 1,643 apiece on the BSE, registering a decline of 11% on Thursday.

2024-04-25T22:28:37Z dg43tfdfdgfd