Karnataka Bank: Emkay cuts target by 15% after CEO exit; what RBL, KVB, Federal Bank cases suggest

Emkay Global has cut its rating and target price on Karnataka Bank Ltd following the exits of MD and CEO Srikrishnan Hari Hara Sarma -- appointed in June 2023, and ED Sekhar Rao. It said the management void would impact Karnataka Bank's transformation process, including retailisation and hence growth. 

Factoring this in, it slashed its earnings estimates by 6-13 per cent for FY26-28 and its target multiple to 0.6 times estimated June 2027 adjusted book value (ABV) from 0.8 times March 2027 earlier. The brokerage suggested 'ADD' rating on the stock against 'Buy' earlier and cut its target to Rs 220 from Rs 260 earlier. The brokerage had a target price as high as Rs 300 suggested for Karnataka Bank in December 2024.

"We however take comfort in KBL’s in-expensive valuations, higher capital levels, and hopes of the Board hiring an external MD to help the bank maintain its transformational journey," the brokerage said.

Karnataka Bank shares fell 5.75 per cent to Rs 195.75. The scrip has gained 11.47 per cent in the past three months, in line with 11.53 per cent return delivered by the BSE Financial Services during the same period.

The exits reportedly stemmed from Board-level disagreements over a consultancy expense of Rs 15.3 million, flagged by auditors in May 2025. The spend exceeded the directors’ delegated authority and was not formally ratified, rendering it potentially recoverable from the directors themselves. 

While this incident may have been a trigger, it likely reflects deeper tensions that have been gradually emerging between the new management and the board, Emkay Global said. 

Leadership churns of this nature are not uncommon in regional private sector banks following management transitions. Outcomes, however, have varied—some banks like Karur Vysya Bank (KVB), RBL Bank, Federal Bank, and South Indian Bank (SIB) have navigated such changes successfully, while others such as DCB Bank and Lakshmi Vilas Bank (LVB) faced more turbulent results, Emkay said.

"We believe that the management’s flip-flop view on growth and the relative underperformance vs guidance too could have played a role in this friction with the Board. Additionally, we believe that a radical business approach in an otherwise traditional organization could have added to the discord. In a separate event, the bank identified cross-border UPI transaction discrepancies of Rs 0.19bn, calling for appointment of a forensic auditor in Apr-25 to probe the issue," Emkay said.

The onus will be on the Board to hire an external MD and CEO, who takes the transformational journey ahead and aligns well with the bank’s vision, Emkay said.