Karnataka Bank shares plunge over 8% after CEO, board member resign

BENGALURU:
Shares of Karnataka Bank Ltd. fell sharply on Monday (June 30, 2025), plunging as much as 8.5% intraday in what became the stock’s worst session in nearly five months. The sell-off came after the bank announced over the weekend that its Managing Director and CEO, Srikrishnan Hari Hara Sarma, and board member Sekhar Rao had resigned.

The stock opened around 4% lower on Monday and accelerated losses as trading progressed, reflecting market unease about leadership transitions at the century-old private sector bank.

Details of the resignations

In a filing on Sunday (June 29), Karnataka Bank said Mr. Sarma resigned citing “personal reasons, including his decision to relocate back to Mumbai.” His resignation is effective from July 15, 2025.

Meanwhile, Sekhar Rao, an Executive Director and board member, also stepped down citing personal reasons. His resignation is effective July 31, 2025.

The bank acknowledged the surprise exits, saying:

“A committee has been set up to identify suitable replacements for the roles,” and added that it is “taking necessary steps to ensure operational stability.”

Market reaction

The double resignation rattled investor sentiment, pushing the stock price sharply lower on Monday.

Analysts said such top-level exits create uncertainty over succession planning and strategic direction, especially for a regional bank navigating a competitive environment and regulatory changes.

“This is not a small mid-level change. Losing both the CEO and an Executive Director in one weekend raises succession risk and can impact stakeholder confidence,” said a Mumbai-based banking sector analyst.

The sharp drop in stock price marks Karnataka Bank’s worst intraday performance in nearly five months, underscoring the nervousness among investors.

Operational impact and management response

Karnataka Bank sought to reassure stakeholders on Sunday by highlighting that a board-level committee has already been tasked with finding replacements.

The bank stated that it is “taking necessary steps to ensure operational stability,” signalling that daily operations, credit disbursements, and branch-level banking will continue normally.

Senior management is expected to hold internal meetings to smooth the transition.

Background on Karnataka Bank

Founded in 1924 and headquartered in Mangaluru, Karnataka Bank is one of India’s oldest private sector lenders, known for its strong retail and SME presence, particularly in southern states.

It operates a network of over 900 branches and has been pushing for digital adoption and growth in retail credit.

Mr. Srikrishnan Sarma took over as Managing Director and CEO in 2023, bringing with him experience from stints at private banks and fintech firms. His tenure has focused on modernising operations, improving credit quality, and balancing the loan book.

Financial backdrop

The resignations come at a time when Karnataka Bank has faced pressure on profitability.

The lender recently reported a marginal decline in net profits, which it attributed partly to the Reserve Bank of India’s updated accounting policies that changed provisions and recognition norms.

Despite this, Karnataka Bank has maintained that its capital adequacy ratio remains healthy and that it continues to manage asset quality carefully.

Challenges ahead

Leadership changes in banks typically create transitional challenges, especially in aligning strategy and maintaining employee morale.

For Karnataka Bank, some of the key issues include:

✅ Managing succession smoothly without slowing decision-making.
✅ Maintaining investor confidence amid broader competition in private banking.
✅ Delivering on digital transformation goals set by the outgoing leadership.
✅ Adapting to regulatory changes, including RBI's new provisioning norms.

A banking analyst noted:

“It’s essential that the board quickly appoints new leaders with the ability to execute on the bank’s growth strategy, especially given the competitive environment with larger private banks expanding aggressively.”

Broader industry context

India’s banking sector has been undergoing consolidation and digital transformation. Large private sector banks are investing heavily in technology and branch expansion.

Regional players like Karnataka Bank are under pressure to retain market share, digitise services, and strengthen credit underwriting.

While Karnataka Bank has remained profitable and well-capitalised, leadership stability is critical for navigating these shifts.

Next steps

According to Karnataka Bank, the board-appointed committee is already working to identify successors. This could include internal promotions or recruitment of external candidates with industry experience.

The bank will also need to secure regulatory approvals from the Reserve Bank of India (RBI) for any new appointments.

Stakeholders will be watching for:

✅ Timelines for the announcement of replacements.
✅ Clarity on the strategic vision of the incoming leadership.
✅ Any adjustments to operational or credit policies during the transition.

Conclusion

The surprise exits of Karnataka Bank’s CEO and an executive director have introduced an element of uncertainty for investors, reflected in the sharp share price drop.

However, the bank’s quick move to set up a search committee and its assurance of operational stability indicate it is working to manage the transition carefully.

As Karnataka Bank approaches its centenary in 2024, its ability to maintain strategic continuity during this period of leadership change will be critical for its long-term growth and investor confidence.

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