Kotak Bank Stock Climbs 2% After RBI Lifts Restrictions on New Customer Onboarding

Kotak Bank Share Price: To the private bank's relief, the Reserve Bank of India (RBI) has lifted all restrictions imposed on Kotak Bank after serious non-compliances were discovered during its IT examination. This sent the share price of Kotak Mahindra Bank up by nearly 2%.

At 9:30 am, the shares of the banking firm were trading at Rs 1,980, up by over 1.85% on the National Stock Exchange.

In April 2024, the RBI imposed restrictions after the bank failed to address the non compliance issue despite repeated warnings. According to the central bank, Kotak Mahindra Bank did not meet IT risk and security standards for two consecutive years. This prompted RBI to restrict the bank from onboarding new customers and issuing new credit cards.

"The bank is found to be materially deficient in building necessary operational resilience on account of its failure to build IT systems and controls commensurate with its growth," the RBI said.

The bank experienced repeated outages in its Core Banking System (CBS) and online banking channels owing to weak IT infrastructure and risk management. In just over a week, the shares of the private bank came tumbling down by over 16% on the bourses as investor sentiment weakened.

The bank issued a statement after RBI pulled the restrictions and said, "the decision follows the Bank's successful implementation of remedial measures and compliance validation through an external audit. We will continue to work closely with the RBI to shortly resume digital onboarding of new customers and issuing fresh credit cards."

C-Suit Exits Continue to be a worry

While Kotak Mahindra Bank's stock continues its upward streak, hitting fresh 52-week highs after a strong Q3 performance, a string of top-level exits remains a concern for investors.

Just last month, the bank's COO and CTO Milind Nagnur resigned, marking the sixth major departure in over 15 months. Earlier, the bank saw several key exits, including those of Joint MD KVS Manian and Virat Diwanji, Group President of the Consumer Bank.

"We continue to monitor the changes in top management, especially in light of the recent churn. Any impact of the recent management exit on Kotak Bank’s ban resolution timelines or on medium term growth outlook will be key to watch," the global brokerage firm stated in a report last month.

Kotak reported a 10% surge in its profit levels at Rs 4,701.02 crore in Q3FY25 as compared to Rs 4,264.78 crore recorded in the corresponding quarter of the previous year. The recent removal of restrictions has further boosted brokerages' outlook on the stock.

"With the removal of these restrictions, we expect KMB to push for growth in credit card segment, which should provide support to NIMs and fee income. Customer acquisition should also gather pace, driven by resumption of digital onboarding," the global brokerage firm stated while maintaining a BUY rating on the stock with a target price of Rs 2,110.