Kotak Bank share price: Kotak Mahindra Bank witnessed a staggering 13 per cent decline in its shares on Thursday, spurred by India's central bank's decision to prohibit the private lender from onboarding new clients digitally. The move has raised concerns regarding the potential ramifications for the institution, known for its heavy reliance on online banking services.

This plummet marks the most significant intraday drop for the bank's shares since the implementation of COVID-19 pandemic restrictions in March 2020. Furthermore, the stock's decline emerged as the primary drag on the benchmark Nifty 50 index, which remained relatively flat amidst the turbulence.

The Reserve Bank of India (RBI), in its announcement on Wednesday, directed Kotak Mahindra Bank, India's fourth-largest lender by market value, to cease acquiring new customers through its online and mobile banking platforms, as well as refrain from issuing new credit cards. This stern action was attributed to IT-related deficiencies identified within the bank's operations.

According to Suresh Ganapathy, an analyst at Macquarie Capital, the RBI's decision came as a "negative surprise" and is anticipated to impact Kotak's growth trajectory in the medium term, given its heavy reliance on digital infrastructure. Notably, a significant portion of the bank's new personal loans and credit card disbursements were facilitated through digital channels, accounting for 95 per cent and 99 per cent, respectively, in the October-December quarter.

Responding to the regulatory intervention, Kotak Mahindra Bank affirmed its commitment to fortify its IT systems with advanced technology, expressing confidence that the ban would not significantly impede its overall business operations. However, several brokerages, including Jefferies, opted to reduce their price targets on the bank's stock, citing potential risks and adjusted earnings projections to reflect the evolving scenario.

The RBI's action against Kotak Mahindra Bank parallels its previous interventions involving non-compliant entities. For instance, in December 2020, India's largest private lender, HDFC Bank (HDBK.NS), faced similar restrictions on new credit card recruitment and digital product launches following disruptions in its digital payment services due to a power outage.

The duration of the ban imposed on Kotak Mahindra Bank remains a critical aspect to monitor, as both the RBI's review process and an external audit could potentially prolong the embargo, noted Macquarie's Ganapathy.

Currently, Kotak Mahindra Bank's stock trades at approximately 20 times its projected earnings over the next 12 months, positioning it as the second-most valuable stock within the 12-member Nifty bank index, as per LSEG data. The day's downturn extended the bank's losses for the year to over 12 per cent, significantly surpassing the marginal 0.3 per cent decline observed in the broader bank index.

(With Reuters inputs.)