Kotak Mahindra Bank has seen a major setback this week: Joint Managing Director KVS Manian has resigned with immediate effect. The Mumbai-based bank was his place of employment for only two months before he decided to leave the company in search of other opportunities within the financial sector, according to an official statement released by Kotak Mahindra.
This executive departure comes during the midst of a crisis in their digital operations; recently imposed sanctions by the RBI prohibit new credit card issuances after finding unresolved problems flagged during regulator’s IT examinations for FY22 and FY23 along with frequent technology disruptions.
IIFL Securities responds by keeping ‘sell’ rating on Kotak Mahindra Bank, setting target price at Rs 1,800 per share. Though shares have fallen 18% YoY, analysts still see it as expensive — 2.5x core PBV and PEG ratio of 1.5 vs peers range of 0.6-1.2. The firm also said it will watch out for more senior management exits post new CEO appointment.
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The secured retail loans share was one of Kotak Mahindra Bank’s historical strengths which helped drive down funding costs while maintaining strong liability management that translated into excellent asset quality over time too But it seems things are changing as shown by the fact that Q2FY24 saw YoY growth rate in unsecured loans book at +58% for KMB Vs competitors’ HDFC/ICICI/Axis where they grew +22/+28/+9%. This surge raises concerns over potential spike in NPA levels & impact on bank’s stability given these trends.
Meanwhile retail deposits fell to just 57% (Q2FY24) from underperformance vis-a-vis peers who have seen solid growth here instead… Over last one week stock has corrected ~10% while Nifty 50 has gained ~0.5%.
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Therefore, it will be interesting to see how Kotak Mahindra Bank emerges from this period of turbulence with regards its reputation and financial performance going forward, say market watchers and investors alike.
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