India's Kotak Mahindra Bank drops over 2% after naming outsider as new CEO

FILE PHOTO: A man walks past the Kotak Mahindra Bank branch in New Delhi

MUMBAI (Reuters) -Shares of Kotak Mahindra Bank fell more than 2% on Monday after it named veteran banker Ashok Vaswani as managing director and CEO following founder Uday Kotak's resignation, raising fears of volatility in the Indian lender's business going forward.

Shares fell as much as 2.7% to 1,722.45 rupees on Monday. The stock was last down 1.2% at 1,749 rupees.

The private lender said on Saturday that the central bank has approved the appointment of the veteran international banker Vaswani, surprising analysts who had expected an insider would succeed the founder for the top job.

The bank's preference may have been for existing senior management, with KVS Manian and Shanti Ekambaram being top contenders for the CEO's role, Jefferies' analysts said in a note.

Jefferies downgraded the stock to "hold" from "buy" and cut the target price to 1,940 rupees apiece from 2,400 rupees earlier.

Emkay said that the new CEO would have "a tall task" on his hands to manage senior management attrition or any "business dislocation."

The brokerage maintained a "hold" rating on the stock and cut the target price to 1,955 rupees per share from 2,000 rupees earlier.

Moreover, as the Reserve Bank of India (RBI) caps the age of CEOs at 70, five years down the line, the bank would again be talking of leadership transition issues, assuming Vaswani serves two full three-year terms, Macquarie analyst Suresh Ganapathy said in a note.

By that time existing senior management, who were candidates for the chief executive's position, could also possibly be out of the picture, Macquarie added.

(Reporting by Siddhi Nayak; Editing by Nivedita Bhattacharjee and Eileen Soreng)