Kotak Mahindra Bank Surges to 52-Week High as RBI Lifts Digital Curbs; Analysts See Strong Growth Potential

Kotak Mahindra Bank’s stock surged 2.25% after the RBI lifted restrictions on digital onboarding and credit card issuance. Analysts expect improved margins, stronger customer acquisition, and a potential valuation re-rating. Several brokerages maintain a “Buy” rating, citing growth potential in the bank’s digital-driven strategy.

CONTENTS:

• Kotak Mahindra Bank Surges 2.25% as RBI Lifts Digital Restrictions; Analysts See Growth Potential
• Kotak Mahindra Bank Hits 52-Week High as RBI Lifts Operational Restrictions
• Kotak Mahindra Bank Poised for Valuation Re-Rating After RBI’s Digital Nod, Say Analysts

Kotak Mahindra Bank Surges to 52-Week High as RBI Lifts Digital Curbs; Analysts See Strong Growth Potential

Kotak Mahindra Bank Surges 2.25% as RBI Lifts Digital Restrictions; Analysts See Growth Potential

Kotak Mahindra Bank’s stock saw a 2.25% rise, reaching ₹1,986.95 on the BSE, following the Reserve Bank of India’s (RBI) decision to lift restrictions on digital customer onboarding and credit card issuance. Analysts at Nomura believe this will enhance the bank’s net interest margin (NIM) and fee income growth.

With the removal of restrictions, Kotak Mahindra Bank is expected to accelerate its credit card business expansion, which had previously slowed due to regulatory limitations imposed in April 2024. Credit card loans had declined by 2.7% in FYTD25 to ₹14,100 crore by Q3FY24, and the bank’s market share in cards had dropped from 5.9% in April 2024 to 4.6% in December 2024. The number of outstanding credit cards also fell from 60 lakh to 50 lakh during the same period.

Nomura remains optimistic about the bank’s growth potential, maintaining a “Buy” rating with a target price of ₹2,110. Analysts highlight that the resumption of digital customer onboarding will aid in acquiring new savings accounts and cross-selling financial products. The bank’s digital-first approach, particularly through its Kotak 811 platform, has played a significant role in customer acquisition, with 72% of new savings accounts and over 50% of credit cards, loans, and insurance policies sourced digitally.

While digital onboarding contributes significantly to customer acquisition, Nomura notes that the financial value derived from digital-native customers remains relatively low. However, with stress in the credit card segment stabilizing and the possibility of interest rate cuts, the bank is positioned for growth, benefiting from improved margins and increased fee income.

Kotak Mahindra Bank Hits 52-Week High as RBI Lifts Operational Restrictions

Kotak Mahindra Bank shares surged nearly 2% on February 13, 2025, reaching a 52-week high of ₹1,987.55 after the Reserve Bank of India (RBI) lifted restrictions on its digital operations. The stock was trading at ₹1,969.90 in early trade, up 1.37%, as investor sentiment turned positive following the regulatory announcement.

The RBI removed the supervisory curbs imposed on April 24, 2024, under Section 35A of the Banking Regulation Act, 1949. These restrictions had been placed after IT examinations for 2022 and 2023 revealed significant deficiencies in IT inventory management, user access controls, vendor risk management, data security, and business continuity planning. As a result, the bank was temporarily barred from onboarding new customers digitally and issuing fresh credit cards.

To address these concerns, Kotak Mahindra Bank implemented corrective measures, submitted compliance reports, and conducted an external audit with RBI’s approval. The central bank, now satisfied with the bank’s compliance efforts, officially lifted the restrictions, allowing Kotak Mahindra Bank to resume digital customer onboarding and credit card issuance.

Following this decision, several ratings agencies revised their outlook on the bank, further boosting investor confidence. The RBI had previously indicated that the restrictions would be reviewed only after a comprehensive external audit confirmed full compliance.

With these operational constraints now removed, Kotak Mahindra Bank is expected to strengthen its position in the credit card market and accelerate customer acquisition through digital channels.

Kotak Mahindra Bank Poised for Valuation Re-Rating After RBI’s Digital Nod, Say Analysts

Kotak Mahindra Bank shares are expected to be in focus following the Reserve Bank of India’s (RBI) decision to lift restrictions on the bank’s digital operations. This move allows the lender to issue new credit cards and onboard customers via online and mobile banking channels.

Analyst Ratings and Price Targets

Among the 44 analysts covering Kotak Mahindra Bank, 35 have assigned a ‘Buy’ rating, four recommend ‘Hold,’ while five suggest ‘Sell.’

• CLSA has given an ‘Outperform’ rating with a price target of ₹2,125, indicating a potential 9% upside. While the RBI’s decision is seen as a positive sentiment driver, CLSA noted that the impact on earnings per share (EPS) remains minimal. Since the ban, the bank’s credit card spending and loan market share declined by 50 basis points to 4%. However, credit cards make up only 3% of Kotak’s total loans, leading to a less than 1 percentage point effect on overall loan growth and a 2%-3% impact on Q3 EPS.

• HSBC maintains a ‘Buy’ rating with a higher target of ₹2,210, citing improved earnings potential and customer acquisition growth, particularly through the ‘811’ digital platform.

• Morgan Stanley has an ‘Overweight’ stance with a price target of ₹2,290, emphasizing Kotak’s already strong profitability and the potential for accelerated unsecured loan growth, which could help manage margins effectively.

• Bernstein holds a ‘Market Perform’ rating with a target of ₹1,950, viewing the RBI’s decision as a positive step that may alleviate margin pressure from recent rate cuts. The firm also highlighted the regulatory scrutiny banks have faced recently.

• Macquarie has an ‘Outperform’ rating and a price target of ₹2,200. It expects the removal of restrictions to bolster growth and support margins, projecting Kotak to achieve the highest core earnings growth (23%) among large private banks in FY26, compared to the 13%-19% growth expected for its peers. Macquarie also sees Kotak’s valuation at 1.7x FY27 estimated price-to-book (P/B) ratio as an attractive risk-reward proposition.

Stock Performance and Market Sentiment

Kotak Mahindra Bank shares closed 1.40% higher at ₹1,945.50 on Wednesday. Over the past year, the stock has risen by 12%, though its historical returns have remained in the single digits since 2020. The stock gained 18.5% in 2020 but declined 10% in 2021, followed by modest gains of 1.8% in 2022 and 4.4% in 2023, before slipping 6.4% in 2024.

With the lifting of restrictions, analysts anticipate renewed investor confidence, a potential valuation re-rating, and an acceleration in Kotak’s digital-driven growth strategy.