RBI curbs on Kotak Mahindra Bank to hurt retail business, stock may fall up to 5%, says expert

Prakash Diwan, Principal Officer of Bering Capital Fund India, said the action would inhibit growth projections that Kotak Mahindra Bank had set for itself. He added that the issue is not as serious as KYC or risk framework. He added that the bank now needs to focus on digitising its infrastructure.

Digant Haria pointed out that these actions from the central bank came after the banks rushed digital adoption during the pandemic and RBI couldn’t go thorough inspections at that time. “A lot of those deficiencies are coming out now because we did everything in a hurry. Now, to solve a problem which was created because of a hurried approach, it takes time.”, he added.

Ashutosh Mishra, Lead BFSI Analyst & Head of Research - Institutional Equity at Ashika Stock Broking, said the action will negatively impact the customer onboarding through the 811 app as it is one of the major drivers for new customer acquisition.

Stock Impact

A banking fund manager, who didn’t want to be named, said there would be a 3 to 5 percent price correction in the stock price which is the worst case in the near term. "It would take six to nine months to resolve such issues", he pointed out it would be difficult to gauge the impact on earnings as banks will find a way to onboard customers if there is a restriction on online mode.

Digant Haria said the stock price and the business would take a reasonable time to bounce back due to the impact.

Prasanna Bidkar, Investment Specialist at Rupeeting also expects pressure on the stock in the short term. "The stock price might go down between 3-4 percent." he said.

For Kotak Mahindra Bank, 200-day EMA (exponential moving average placed at Rs 1,790) is the important level to watch out for on April 25. If the said level gets broken, then experts see increasing selling pressure in the counter.

"Kotak Bank has immediate trendline hurdle near 1860 levels. Prices are trading close to channel resistance. So a breakout of it is must for fresh buying to emerge. On the other hand, 1780 is the key support level to watch out. A break below 1780 will be a sign of concern," said, Ashish Kyal, Founder and CEO of Waves Strategy Advisors.

Sudeep Shah, Head of Technical & Derivative Research, SBI Securities said the stock has been consolidating in a range and trading below its swing high of 1920-25. "While the recent action by RBI on Kotak Bank has been negative and the stock is expected to react negatively, we feel it could once again continue consolidating between its long term trading range of 1650-1950 in which it has remained stuck May 2021. From a short-term perspective, any move below the 200-Day EMA below Rs 1,790 could lead to the fall extending upto Rs 1,750-1,730 on the downside.", he added.

Shares of Kotak Mahindra Bank closed 1.65 percent higher at 1,842.95 on NSE on April 24. The stock has declined 3.45 percent in the year so far.

Strengthening Digital Framework

In 2020, RBI had taken a similar action against HDFC Bank, asking the lender to stop their new digital launches till they resolve the issue. The ban was partially revoked in August 2021 when HDFC Bank was allowed to issue new credit cards and fresh digital launches were resumed in March 2022.

Experts said such actions will be more frequent as RBI tries to strengthen the framework of the banking system. “As the Indian banking system witnesses a robust uptick in adoption of digital banking services, adherence to high security standards becomes imperative to maintain sustained and healthy growth,” said, Nirav Karkera, Head of Research, at Fisdom.

“The restrictions on Kotak Mahindra Bank in respect of fresh onboarding of new customers through online mobile banking and credit cards by RBI is indicative of the significant importance which RBI is laying on the need to have strong and sustainable Information Technology systems in the context of current growth of digital banking,” said Jyoti Prakash Gadia, Managing Director at Resurgent India.