Kotak Mahindra Bank, which was about half the size of State Bank of India (SBI) till just about three years ago, has displaced the largest public sector lender to emerge the second-biggest bank by market capitalisation — behind only HDFC Bank.
While the BSE Bankex index, representing banking stocks, has declined 8.4% since February 1, the share of State Bank of India has lost 20.3% of its value. In contrast, the stock of Kotak Mahindra Bank has gained 5.4% during the period. The Uday Kotak-led lender had a market capitalisation of Rs 2.23 lakh crore on Monday, which is Rs 480 crore more than that of SBI, data sourced from Bloomberg showed. The bank had ousted ICICI Bank in market valuation in February 2016–ICICI Bank’s present capitalisation is Rs 1.85 lakh crore.
While ICICI Bank had surpassed the market capitalisation of SBI earlier, its value has significantly eroded since the controversy surrounding its CEO became public. For Kotak Mahindra Bank, surpassing the market cap of SBI will be a big first.
Shares of SBI which extended its losing streak for the fourth day on Monday, has come off over 26% from its mid-November peak. The surge in Kotak Mahindra Bank’s market cap has also resulted in SBI losing its status as one of the country’s top 10 valued firms in terms of market capitalisation. Over the last five years through FY17, the loan book of Kotak Mahindra Bank has grown at a CAGR of 28.3%, higher than its largest peer HDFC Bank which saw loans grow at 23.2% during the same period.
Kotak Mahindra Bank has also grown its depositor base strongly from 8 million to 12 million since the launch of its 811 zero-balance savings account in March 2017. On a monthly basis, the bank is now adding customers at a rate 2.5-3 times higher than it did a year ago, Uday Kotak, executive vice chairman and managing director told reporters on March 20. Analysts observed that a moderate lending standard and relatively low proportion of stressed assets has helped the bank to maintain good asset quality. As of December 2017, the bank has a gross non-performing (GNPA) ratio of 2.31%, against 10.35% for SBI.
JP Morgan which reiterated its Overweight rating on the stock opined: “the bank is in a strong position to leverage the reduced competitive intensity in the core banking segment and a positive operating environment for the subsidiaries.” It added, “The stress across PSU banks gives Kotak the opportunity to leverage its balance sheet”. Uday Kotak, the billionaire promoter is reaping the benefits of the rally in the bank’s stock. His personal wealth has grown by $4.3 billion to $11.3 billion since the beginning of 2017, showed the Bloomberg Billionaires Index. Kotak with close to 30% holding in the bank has been asked by the RBI to reduce his stake to 15% by March 2020.
As of Monday, 70.3% of the 37 analysts that track Kotak Mahindra Bank had a buy recommendation on the stock, with Morgan Stanley and UBS having a one year price target of Rs 1,300 per share, compared to the closing price of Rs 1,170.05.