How brokerage calls stack up on Kotak Mahindra Bank after RBI curbs, ratings, targets largely intact

The RBI imposed restrictions on April 24, prohibiting Kotak Bank from onboarding new customers online and via mobile banking, as well as issuing new credit cards due to serious IT deficiencies

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26 Aug, 2025 12:21

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Brokerages maintained their ratings and target prices for Kotak Mahindra Bank, expecting limited impact on its business and profitability from the curbs slapped by the Reserve Bank of India.

The RBI on April 24 prohibitted Kotak Bank from onboarding new customers online and through mobile banking, as well as issuing new credit cards because of serious IT deficiencies.

Despite digital banking outages and non-compliance with corrective actions, the RBI mandated a comprehensive external IT audit for Kotak Bank to rectify deficiencies. Restrictions will be reviewed post-audit resolution.

Brokerages like HSBC, Jefferies India, Morgan Stanley, Nomura, Macquarie, and Motilal Oswal Securities maintained their rating and kept their target price largely the same. Emkay has downgraded the stock to reduce from 'add' earlier and cut its target price by 10 percent to Rs 1,750 a share.

Morgan Stanley predicts the RBI's action will temporarily affect Kotak Bank's stock price. However, they anticipate limited impact on earnings in the near term due to the bank's diversified franchise. The focus is on how quickly the lender can resolve its issues with the RBI and get the ban lifted.

Kotak Bank has 5.9 million outstanding credit cards, up 21 percent year-on-year, with a 5.8 percent market share. Credit cards represent about 4 percent of the bank's total loans, and its credit card loans outstanding have grown by 52 percent year-on-year as of 3QFY24. While restrictions only apply to new card issuance, they may hinder the bank's goal of increasing unsecured retail loans to a "mid-teens percentage" of its loan book.

The bank's digital customer acquisition strategy is crucial, although it acknowledges that the contribution from digital-native customers is relatively low. The direct business impact from these restrictions is expected to be minimal, but analysts said they will monitor any increase in tech spending by Kotak Bank.

Additionally, the bank has been conservative in branch expansion, adding just 80-100 branches per year. Any change in this strategy, influenced by restrictions on digital customer acquisition, and its impact on operational expenses, will be observed closely.

Macquarie suggests that the RBI's order for Kotak Bank appears stringent compared to those for HDFC Bank and Bajaj Finance. The duration of the ban is crucial. For HDFC Bank, it took over 15 months for RBI to lift a similar ban, indicating thorough due diligence. During this period, HDFC's value decreased by around 20 percent. Kotak Bank might face a similar devaluation in the medium term, it said.

HSBC anticipates earnings pressure from RBI's order. They predict a decrease in EPS by 2-5 percent due to lower growth in credit cards and a loss of 5-6 percent RoA in that business. The bank aims to balance this by growing other high-yield portfolios. Nevertheless, HSBC reduces EPS estimates by 2.2-4 percent for FY25-27 to accommodate lower growth and a slight decrease in RoA.

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