Emkay Global has reduced its rating and target price for Karnataka Bank Ltd following the departures of MD and CEO Srikrishnan Hari Hara Sarma (appointed in June 2023) and ED Sekhar Rao. It stated that the management void would have an impact on Karnataka Bank's transformation process, which includes retailisation and thus growth.
Given this, it reduced its FY26-28 earnings estimates by 6-13 percent and its target multiple to 0.6 times estimated June 2027 adjusted book value (ABV), down from 0.8 times in March 2027. The brokerage recommended a 'ADD' rating on the stock, down from 'Buy' previously, and reduced its target price to Rs 220 from Rs 260. Karnataka Bank could fetch up to Rs 300 in December 2024, according to the brokerage.
"We take comfort in KBL's low valuations, higher capital levels, and hopes that the Board will hire an external MD to help the bank continue its transformational journey," the brokerage said.
Karnataka Bank shares fell 5.75% to Rs 195.75. The stock has gained 11.47 percent in the last three months, matching the 11.53 percent return delivered by the BSE Financial Services during the same period.
The departures were reportedly caused by disagreements at the Board level over a consultancy expense of Rs 15.3 million, which auditors identified in May 2025. The expenditure exceeded the directors' delegated authority and was not formally approved, making it potentially recoverable from the directors themselves.
While this incident may have served as a trigger, it is more likely to reflect deeper tensions that have been developing between the new management and the board, according to Emkay Global.
Also Read: Karnataka Bank Shares Fall 8% as CEO & ED Exit; New COO Steps In
Leadership churn of this kind is not uncommon in regional private sector banks after management changes. However, the outcomes have varied—some banks, such as Karur Vysya Bank (KVB), RBL Bank, Federal Bank, and South Indian Bank (SIB), have successfully navigated such changes, while others, such as DCB Bank and Lakshmi Vilas Bank (LVB), have experienced more turbulent results, according to Emkay.
"We believe that the management's conflicting views on growth, as well as the relative underperformance compared to guidance, may have contributed to this disagreement with the Board. Furthermore, we believe that a radical business strategy in an otherwise traditional organization may have contributed to the discord. In a separate event, the bank discovered Rs 0.19 billion in cross-border UPI transaction discrepancies, necessitating the appointment of a forensic auditor on April 25 to investigate the matter," Emkay stated.
Emkay stated that the Board will be responsible for hiring an external Managing Director and Chief Eecutive Officer who will lead the bank's transformation and align with its vision.
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