Karnataka Bank shares get a downgrade, price target cut after top management quits

Brokerage firm Emkay Global downgraded Karnataka Bank on Tuesday, July 1, and also slashed its price target on the stock.

Emkay has downgraded Karnataka Bank to 'Add' from its earlier rating of 'Buy' and has cut its price target by 15% to ₹220. The revised price target implies a potential upside of 12% from Monday's closing price.

The downgrade follows the resignation of Karnataka Bank's MD and CEO Srikrishnan Hari Hara Sarma (ex-Jio Payments Bank), who was appointed in June 2023, and Executive Director Sekhar Rao. They will be relieved effective July 15 and July 31, 2025, respectively.

According to Emkay, these resignations reportedly stem from Board-level differences over a ₹1.5 crore consultancy spend, flagged by auditors in May 2025. The amount exceeded the directors' delegated authority, was not ratified, and is now deemed recoverable from the directors.

The brokerage believes this could be just another reason for the friction gradually building up between the new management and the Board. Such leadership churns are not uncommon among regional private banks following management overhauls, with mixed outcomes across peers—some successful (KVB, RBL, Federal, SIB), and others less so (DCB, LVB).

Emkay warned that the leadership void could disrupt Karnataka Bank's retailisation drive and transformation agenda, potentially weighing on growth.

Factoring this in, the brokerage has trimmed earnings by 6-13% over FY26-28E.

That said, Emkay continues to take comfort in Karnataka Bank's inexpensive valuations, strong capital position, and prospects of the Board appointing an external MD to steer the transformation forward.

A search committee has been formed to identify suitable candidates for the position of Managing Director and CEO, and a new Executive Director, Karnataka Bank said in a statement.

The lender also said that it is well-capitalised, with a Capital Adequacy Ratio (CAR) of over 19.85%, which reflects the
soundness of the bank's financial position and robust risk management practices.

Shares of Karnataka Bank ended 5.66% lower on Monday at ₹195.90. The stock has fallen 8% so far in 2025.