Kotak Mahindra Bank falls nearly 3% as outsider named new CEO

Shares of Kotak Mahindra Bank dropped as much as 2.65 per cent to Rs 1,722.50 per share on Monday, triggered by the announcement of banking veteran Ashok Vaswani as the new Managing Director and CEO, after founder Uday Kotak's resignation. 

This move raised concerns about potential instability in the Indian bank's future operations.

In an exchange filing, the bank said, “we wish to inform you that, RBI approved the appointment of Ashok Vaswani as the Managing Director & CEO of the Bank under Section 35B of the Banking Regulation Act, 2013, for a period of three years, with effect from the date of taking charge, which shall not be later than January 1, 2024. This decision caught analysts off guard, as many had expected an internal candidate to assume the CEO role.

Analysts at Jefferies expressed that the bank's preference may have leaned towards retaining existing senior management, with KVS Manian and Shanti Ekambaram being considered top contenders for the CEO position. Following the announcement, Jefferies downgraded the stock from "buy" to "hold" and revised the target price to Rs 1,940 per share, down from the previous Rs 2,400.

Emkay also pointed out the substantial challenge that the new CEO, Ashok Vaswani, would face in managing potential senior management attrition and addressing any business disruptions. Despite this, they maintained a "hold" rating on the stock and adjusted the target price to Rs 1,955 per share, down from the earlier Rs 2,000. 

Furthermore, the Reserve Bank of India (RBI) imposes an age limit of 70 for CEOs. This means that in the coming five years, the bank might once again encounter leadership transition issues if Vaswani serves two full three-year terms, as highlighted by Macquarie analyst Suresh Ganapathy. During this time frame, the existing senior management, who were potential CEO candidates, could also become less relevant within the organisation.

As of 10:32 am, the shares of the bank were trading 1.47 per cent lower at Rs 1,743.50 per share.

(With Reuters Inputs)