Karnataka Bank shares dip 8% on resignation of MD & CEO, Executive Director

Karnataka Bank stock falls: Abrupt resignations following audit red flags raise serious concerns around governance and internal controls, which could dampen investor confidence, said ICICI Securities.

Karnataka Bank share price

 

Shares of Karnataka Bank slipped 8 per cent to ₹192 on the BSE in Monday’s intra-day trade after its managing director and chief executive officer (MD & CEO), Srikrishnan Hari Hara Sarma, and its executive director (ED), Sekhar Rao, resigned from their positions, citing personal reasons among other factors. 

 

At 10:03 AM; Karnataka Bank was trading 7 per cent lower at ₹193.10, as compared to 0.35 per cent decline in the BSE Sensex. The average trading volumes at the counter jumped three-fold, with a combined 5.7 million shares changing hands on the NSE and BSE.

 

 

Karnataka Bank board accepts resignation of MD & CEO and Executive Director

 

Karnataka Bank in an exchange filing on June 29, informed that the board of directors of the bank has accepted the resignation of the Bank’s Managing Director & CEO; Mr. Srikrishnan Hari Hara Sarma. The resignation will be effective from July 15, 2025. Mr. Sarma has cited personal reasons, including his decision to relocate back to Mumbai, for his resignation.

 

The Bank’s Executive Director, Mr. Sekhar Rao has also submitted his resignation citing inability to relocate to Mangaluru and other personal reasons. The resignation has been accepted by the Board and will be effective from July 31, 2025.

 

The Bank has formed a search committee to identify suitable candidates for the position of a new Managing Director & CEO as well as a new Executive Director. The Bank has appointed an experienced senior banker as the Chief Operating Officer (COO) who will assume charge on July 02, 2025.

 

Managing Director Srikrishnan Hari Hara Sarma and Executive Director Sekhar Rao have resigned citing personal reasons, following audit red flags over ₹1.16 crore spent on consultants and ₹0.37 crore under revenue and capex - expenses made beyond their delegated powers and not ratified by the board. The bank stated the FY25 audit issues have been amicably resolved and assured stakeholders of continued stability and sound capital position.

 

“The Bank continues to take necessary steps to ensure operational stability and assures various stakeholders that it is well capitalised and continues to be sound as hitherto. The transformational journey embarked upon by the Bank will continue unhindered,” Karnataka Bank said.

 

ICICI Securities view on Karnataka Bank

 

Abrupt resignations following audit red flags raise serious concerns around governance and internal controls, which could dampen investor confidence and warrant compression in valuation multiple in the near term. Until leadership clarity emerges and trust is restored, the stock may remain under pressure, the brokerage firm said in a note.

 

Axis Securities view on Karnataka Bank

 

With investments made and strengthening processes and teams ripe to yield results, analysts at Axis Securities expect Karnataka Bank to resume its growth journey, though gradually from FY26E onwards. Focus on granular retail deposits, particularly CASA deposits, remains unabated. 

 

The brokerage firm in the company update report dated May 26, said that they believe Karnataka Bank has multiple levers in place to protect and improve its margins over the medium term, thereby enabling the bank to improve RoAs. With a majority of the investments already made, Opex growth is expected to remain modest, driving cost ratios downwards.

 

Going into FY26, the bank expects to contain slippages at <2 per cent. Furthermore, the bank has been focusing on recoveries from smaller accounts. The bank is also making efforts to ramp up its PCR (currently at ~58 per cent) to align it with its peer banks. The management has guided to improve PCR by 1 per cent each quarter, which could imply higher credit costs in the interim. Despite this, the management remains confident of containing credit costs at ~50bps in FY26E. 

 

“We expect RoA/RoE to remain at 1.1-1.2%/10-13% over FY25-27E, driven by the aforementioned factors. Growth delivery on guided lines, and sustenance remain key levers for a meaningful re-rating in the stock,” Axis Securities said.