The Kotak Mahindra Bank share price has been in focus after the appointment of Anup Saha as the new Managing Director and Chief Executive Officer of the bank. While the 1-year return is less than 1%, the stock has delivered double-digit returns in the last 2-3 months. The key question therefore is it time to buy the shares now?
Saha’s appointment is expected to ensure strategic continuity, develop the bank’s retail lending portfolio further, and address some concerns around execution, pressure on net interest margins (NIM), and a decline in the current account savings account (CASA) ratio.
“The appointment of Anup Saha removes an overhang over leadership succession and is a positive development,” said Dnyanada Vaidya, Research Analyst – BFSI at Axis Direct. The brokerage has been constructive on the stock from before the appointment due to the lender’s ability to deliver healthy growth, deliver healthy growth, strong liability franchise, steady asset quality, and consistent RoA delivery of over 2%, despite margin pressures.
Sameer Sawant, Research Analyst at Mirae Asset Sharekhan echoed a similar sentiment. Sawant said Saha’s appointment is a positive and largely expected development. Saha’s broad experience across banks and non-banking financial companies (NBFCs) and a “potentially long tenure” give him room to make decisive long-term changes.
Kotak Mahindra Bank’s Q2 business update
The key constraint to Kotak Mahindra Bank’s growth story remains funding, said Antu Eapen Thomas, Senior Research Analyst at Geojit Investments.
Loan growth continues to outpace deposit mobilisation, which is leading to a decline in the CASA ratio and is creating pressure on the lender’s margins. Thomas said sustained improvement in deposit franchise and margin expansion will be critical for the bank to regain its historical valuation premium and drive further re-rating.
Mirae Asset’s Sawant flagged execution as the key constraint currently. The bank has already outperformed peers, and the market will now closely watch how the new management delivers on its roadmap, especially on deposit growth and the retail growth strategy.
Similarly, Axis’ Vaidya views pressure on NIMs as one of the constraints. “At present, growth is led by secured retail, SME (small and medium enterprise) and Corporate. Unsecured growth has been lagging given the bank’s calibrated stance as it emerged through the unsecured downcycle. Resultantly, the bank has seen pressure on NIMs,” Vaidya said.
A revival in unsecured growth should also provide fillip to the lender’s margins. “Furthermore, given the reversal of the rate cycle, we expect Kotak’s margins to improve. Kotak continues to remain amongst our top picks in the banking space,” Vaidya added.
A calibrated increase in retail lending is expected under Saha, with unsecured loans having the scope to rise towards the bank’s medium-term target of around 15% of advances from the current 8.8%, Geojit’s Thomas said. He added that mortgages, loans against property, and SME lending should remain key growth drivers.
Thomas said on the liability side, the focus is likely to shift towards strengthening CASA through Kotak 811 and salary account acquisition rather than relying on higher-cost term deposits.
Vaidya said Saha could ensure a further boost to the retail and unsecured portfolio as he leverages his previous experiences at Bajaj Finance and ICICI Bank. Axis’ Vaidya said they will also watch out for Saha’s strategy of deposit mobilisation and leveraging the 811 platform.
Mirae’s Sawant said, “We expect the bank to stay focused on retail and consumer banking, with disciplined capital deployment and deposit mobilisation underpinning growth, while keeping a careful stance on unsecured credit.”
The appointment of Anup Saha as MD, CEO has removed the uncertainties around leadership succession. Now, analysts expect more focus on growing the retail portfolio, leveraging the 811 platform, and improving margins.