Kotak Bank rejig sends Federal Bank shares plunging 8% today. Here's why

Shares of Federal Bank Ltd plunged 8 per cent in Tuesday's trade as Kotak Mahindra Bank made some changes to its top brass, among them being change in role for director KVS Manian, who was reportedly among the three names that were shortlisted by Federal Bank for the CEO job. A media report had earlier suggested that Manian, along with two internal candidates were identified for the MD and CEO role. The Kochi-based lender was expected to be submitting the names to the RBI soon, the report had suggested.

After a correction post results, Federal Bank’s stock recently rallied 10 per cent owing to news-flow about inclusion of KVS Manian (Head - Wholesale & Private Banking, Kotak Mahindra Bank) as one of the three candidates for the post of MD & CEO, which is due to be vacated in September 2024.

Manian has been handling wholesale banking at KMB for a while now, and has earlier headed consumer banking till 2014 – this position was then swapped with Shanti Ekambaram’s.

"This raised hopes for the replacement at Federal Bank with a pedigreed external candidate from a large bank as MD, after the current MD’s extension for another term was rejected by the RBI. But in a separate move, KMB has elevated Manian as its JMD, subject to RBI approval and, hence, possibly dashed hopes of him being a candidate for the MD post at FB. Thus, we believe any stock run-up attributed to this news-flow should come off," Emkay Global said.

Emkay has though retained its 'Buy' rating on Federal Bank and suggested a target price of Rs 180 per share, given the bank’s healthy RoA/RoE trajectory, reasonable valuations and lower exposure to unsecured retail loans.

"KVS Manian, currently a Whole-time Director, has been re-designated as the Joint Managing Director, with effect from March 1, 2024, subject to necessary approvals. approvals. It is important to note that recent media articles suggest that Federal Bank has shortlisted Mr. Manian as one of its CEO candidate. However, there has
been no official communication by FB in this regard," Nomura India said in a note.

Shares of Federal Bank fell 7.97 per cent to hit a low of Rs 150 on BSE. Kotak Mahinda Bank shares were trading 0.84 per cent higher at Rs 1,746.05 on BSE. Kotak Institutional Equities has a Buy rating on Federal Bank and a target of Rs 165. Antique Stock Broking has a target of Rs 190 on the stock. Motilal Oswal sees the Federal Bank stock at Rs 175. 

For the March quarter, the private lender saw net interest margin (NIM) contraction, which Geojit said is expected
to continue for two more quarters. However, the bank’s long-term performance remains positive on the back of growth in advance, it said last month.

In another note last month, YES Securities said the bank would aim to bring CD ratio down to 80 per cent over calendar year 2024, which would exert some downward pressure on NIM, all other things remaining constant. "No rise in deposit rates is expected except perhaps in a few buckets. The overall cost of deposits is expected to remain broadly stable and eventually inch lower. At this point in time, unsecured loans are not being grown as fast as capacity but this would be enhanced at some point," it said. 

Also read: Stock recommendations by analysts for Feb 20: GMR Infra, Indiabulls Real Estate, BLS Intl

 

 

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