By Siddhi Nayak and Jaspreet Kalra

MUMBAI (Reuters) -Kotak Mahindra Bank's shares fell by nearly 11% on Thursday, a day after India's central bank barred the lender that relies heavily on online banking from taking on new digital clients and issuing credit cards.

The Reserve Bank of India acted after the tech systems at Kotak, India's fourth biggest private bank, failed to manage a surge in transactions.

Shares in Kotak fell by as much as 13% to their lowest since November 2020, before paring losses slightly in late trade.

The lender is now valued at INR 3.67 trillion ($44.06 billion), and Jefferies cut its price target for the stock by 4%.

After the market close, Kotak CEO Ashok Vaswani said on social media the company was working to address concerns and was working with the regulator.

"Our operations continue uninterrupted for all existing customers across all channels," Vaswani said further in a letter to customers on social media platform X.

On Wednesday, the bank said it had adopted technology to strengthen its IT systems and believed the ban would not materially impact its overall business.

The central bank did not say how long Kotak's ban would remain. A similar ban on HDFC Bank, imposed in December 2020, was in place for 15 months.

Macquarie Capital analyst Suresh Ganapathy said Kotak's heavily digital business model meant the ban would hurt its medium-term growth.

About 95% of Kotak's new personal loans by volume were disbursed digitally in the October-December quarter, while it issued 99% of new credit cards through digital channels.

"In our view, the fact that Kotak has also seemed reluctant in opening branches, with fewer than 350 branches opened in the last four years, is also an issue," said Ganapathy.

Two Kotak officials and two others with knowledge of the matter said large numbers of customers signing up through the digital platform Kotak811 caused sporadic outages.

Speaking on condition of anonymity because they were not authorised to speak to media, the sources said the overload caused failures on time-sensitive transactions on India's popular real-time payment system, which facilitates interbank transactions through mobile phones.

The central bank's increased scrutiny of banks and other financial firms has resulted in a spate of supervisory restrictions, including halting operations at Paytm Payments Bank in January.

The RBI can impose monetary penalties for violations, but analysts say they are not always effective deterrents.

($1 = 83.3340 Indian rupees)

(Reporting by Siddhi Nayak and Jaspreet Kalra in Mumbai; Additional reporting by Sethuraman NR and Chris Thomas in Bengaluru; Writing by Swati Bhat; Editing by Edwina Gibbs, William Mallard and Barbara Lewis)