Kotak Mahindra Bank Shares Drop 4%: Q2 Results Disappoint Amid RBI Restrictions

Kotak Mahindra Bank's shares fell over 4% to Rs 1,785 on October 21 after the bank's Q2 results for the September quarter fell short of market expectations. The disappointing performance was influenced by weaker loan growth, higher slippages, and shrinking margins, along with the Reserve Bank of India's (RBI) restrictions on its digital banking operations.

Brokerages have expressed concerns about these ongoing challenges. Jefferies maintained a 'hold' rating on Kotak Mahindra Bank, setting a target price of Rs 2,080 per share. They noted that clarity on the RBI embargo is crucial for the bank's future performance. Earlier this year, the RBI had restricted the bank from onboarding new customers through online and mobile banking channels and issuing new credit cards due to deficiencies found in inventory management.

Goldman Sachs also took a cautious approach following the missed expectations in Q2 results. They pointed out that the main disappointment stemmed from muted asset quality trends, with higher slippages and credit costs than anticipated. Despite this, they retained a 'buy' rating with a target price of Rs 2,286 per share, highlighting healthy loan growth and pre-provision operating profit growth.

In Q2 FY25, Kotak Mahindra Bank reported a net profit of Rs 3,344 crore, marking a 4% increase year-on-year, but it was below the estimated Rs 3,494 crore. The bank's net interest income rose 11% YoY to Rs 7,020 crore; however, the net interest margin (NIM) fell to 4.91% from 5.22% a year ago.

The main disappointment for investors was the bank's asset quality. The net non-performing assets (NNPAs) increased to 0.43% from 0.37%, while gross non-performing assets (NPAs) decreased to 1.49% from 1.72% over the year.

ALSO READ| PNC Infratech Faces Setback: Shares Hit 20% Lower Circuit After One-Year Ban from Tenders

JPMorgan analysts attributed the strain on asset quality to a 1.2% rise in net slippages, especially in the cards and microfinance segments. They reported that CASA (Current Account Savings Account) growth was muted at 4% YoY, with total deposit growth at 15% YoY and loan growth also at 15% YoY, maintaining an 'overweight' rating with a target price of Rs 2,030 per share.

[Disclaimer: The information provided in this blog is for informational purposes only and should not be considered financial advice. Please consult a financial advisor before making any investment decisions.]