Kotak Mahindra Bank shares plummet 10% after RBI orders restrictions

• Kotak Mahindra Bank shares plummet 10% following RBI restrictions
• RBI directive bars the bank from issuing new credit cards and onboarding customers online due to IT deficiencies
• Bank assures measures to bolster IT systems; analysts express concerns over growth and earnings impact

Kotak Mahindra Bank's shares experienced a significant setback, tumbling nearly 10% in response to stringent measures imposed by the Reserve Bank of India (RBI). The central bank's action came in light of critical deficiencies identified in the bank's IT system, prompting restrictions on its operations. RBI's order prohibits Kotak Mahindra Bank from adding new customers via its online platform and mobile app, along with halting the issuance of new credit cards. The regulatory intervention stems from observed shortcomings in various aspects of the bank's IT infrastructure, spanning IT inventory management, patch and change management, user access management, vendor risk management, and data security.

In response to the RBI's directives, Kotak Mahindra Bank has assured stakeholders of its commitment to rectify the identified issues. The bank stated its implementation of measures aimed at bolstering its IT systems through the adoption of new technologies. Despite these assurances, financial analysts have expressed concerns regarding the potential impact on the bank's growth trajectory and financial performance. Citi, for instance, warned of adverse effects on the bank's growth, net interest margin (NIM), and fee income, prompting a 'neutral' rating on the stock with a target price of ₹2,040 per share. Emkay Global echoed similar sentiments, anticipating a medium-term earnings hit and highlighting the regulatory overhang as a deterrent to potential re-rating prospects following recent management changes.