By Siddhi Nayak, Jaspreet Kalra and Sethuraman N R
MUMBAI/BENGALURU (Reuters) -Kotak Mahindra Bank’s shares tumbled on Thursday after it was banned from taking on new clients digitally, dimming growth prospects for the lender which relies heavily on online banking.
India’s fourth-largest bank by market value was barred from taking on new customers via its online and mobile banking channels, and from issuing new credit cards, due to IT-related deficiencies, the central bank said on Wednesday.
Authorities did not say how long the ban might stay in place but a similar ban for HDFC Bank that was imposed in December 2020 was in place for more than a year.
“The issue could take at least 6-9 months to get resolved and the ban could be lifted in about a year,” said Vinit Bolinjkar, head of research at Ventura Securities.
“Till then, we do see short-term impact on the bank in terms of potentially losing credit card market share to bigger rivals like HDFC Bank, ICICI Bank and Axis Bank,” he added.
Shares in Kotak were down 10% in morning trade. At one point, the stock fell as much as 13% to its lowest level since November 2020, valuing the lender at 3.18 trillion rupees ($38 billion).
Macquarie Capital analyst Suresh Ganapathy noted that Kotak had a very heavy digital business model and that the ban would would adversely impact its medium-term growth.
About 95% of Kotak’s new personal loans sold by volume were disbursed digitally in the October-December quarter, while it issued 99% of new credit cards through digital channels.
“In our view, the fact that Kotak has also seemed reluctant in opening branches, with fewer than 350 branches opened in the last four years, is also an issue,” said Ganapathy.
Kotak’s tech system was unable to manage a surge in transactions due to large amounts of customers signing up through its digital banking platform Kotak811, causing sporadic outages which led to the central bank action, according to two Kotak officials.
They were not authorised to speak to media and spoke on condition of anonymity.
Kotak did not immediately reply to a request for comment. It said on Wednesday it had adopted new technology to strengthen its IT systems and that it believes the ban will not materially impact its overall business.
Jeffries and at least two other brokerages cut their price targets for Kotak.
($1 = 83.3340 Indian rupees)
(Reporting by Siddhi Nayak and Jaspreet Kalra in Mumbai, Sethuraman NR in Bengaluru; Writing by Swati Bhat; Editing by Edwina Gibbs)
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