Kotak Mahindra Bank CEO Assures Uninterrupted Operations After RBI Restrictions

Ashok Vaswani, the Managing Director and CEO of Kotak Mahindra Bank, has assured customers of uninterrupted operations following the Reserve Bank of India's (RBI) directive to the bank on April 26, 2024. The RBI barred the private sector lender from welcoming new clients through its online and mobile banking channels and prohibited it from issuing fresh credit cards, citing repeated non-compliance with IT norms and the discovery of "serious deficiencies" in the bank's IT risk management.

In a letter to customers, Vaswani stated that the bank is "diligently striving" to address the concerns raised by the regulator and is in constant communication with the RBI to resolve any issues promptly. He emphasized that the bank's operations will continue without disruption, and customers can continue to avail of the bank's services as usual.

The RBI's action followed the bank's "continued failure" to address concerns related to its IT systems. During the supervision of the bank's IT platform in 2022 and 2023, the RBI found serious deficiencies in areas such as IT inventory management, patch and change management, user access management, vendor risk management, and data security. The RBI was not satisfied with the measures taken by the bank to address these deficiencies, which affected the bank's service delivery and resulted in frequent outages in its online and digital banking channels.

Why this matters: The RBI's restrictions on Kotak Mahindra Bank highlight the importance of robust IT risk management practices in the banking sector. The bank's inability to address the identified deficiencies in a timely manner has led to regulatory action that could impact its growth and customer acquisition in the short term.

Vaswani acknowledged the need for a different level of tech infrastructure due to the explosive growth in the bank's digital business. He stated that the bank has taken measures to strengthen its IT systems and will continue to work with the RBI to resolve the balance issues at the earliest. The bank has also commissioned a comprehensive audit of its IT systems under the RBI's approval and supervision.

Analysts believe the RBI's restrictions will adversely impact the bank's growth, net interest margin, and fee income in the medium term, and the regulatory overhang could delay any re-rating of the stock. The Kotak Mahindra Bank's stock closed 10.85% down on the BSE on the day of the RBI action.

Vaswani assured employees that the bank will continue to onboard new customers via non-digital channels and across all products other than credit cards. "The bank has also stated that it will commission a comprehensive audit of its IT systems under the RBI's approval and supervision," he said in a letter to employees.

Key Takeaways

• RBI barred Kotak Mahindra Bank from onboarding new clients and issuing credit cards.
• RBI cited repeated non-compliance with IT norms and "serious deficiencies" in the bank's IT systems.
• The bank is working to address the concerns and conducting a comprehensive IT audit.
• The restrictions could impact the bank's growth, margins, and fee income in the short term.
• The bank will continue onboarding new customers through non-digital channels, except for credit cards.