Reserve Bank of India (RBI), has directed Kotak Mahindra Bank (KMB) to cease and desist, with immediate effect from
- onboarding new customers through the Bank’s online and mobile banking channels; and
- issuing fresh credit cards.
“These actions are necessitated based on significant concerns arising out of Reserve Bank’s IT Examination of the bank for the years 2022 and 2023 and the continued failure on part of the bank to address these concerns in a comprehensive and timely manner,” RBI said.
The decision has come post the Regulator engaging with the bank on deficiencies and him not being satisfied with the corrective actions.
The action however has no impact on the existing customers of the bank as well as onboarding of new customers offline (except new credit card customers).
Response from the bank
“The Bank has taken concrete steps to adopt new technologies to strengthen its IT systems and will continue to work with RBI to swiftly resolve balance issues at the earliest. The Bank would like to reassure its existing customers of uninterrupted services, including credit card, mobile and net banking. The Bank’s branches will continue to onboard new customers, providing them with all the Bank’s services, except issuance of new credit cards.”
The Bank believes that these directions will not materially impact its overall business.
How material is the event?
In the short term – significant as like every other bank, KMB has been focusing on the digital channels for new customers as well as aggressively issuing new credit cards.
Curbs would force the bank to look at alternatives for growth and very likely would impact the growth in the near future.
However, I expect the bank to normalise faster than consensus expectations. These are significant events, and a large and smart institution like Kotak would be expected to resolve them quickly.
72% of the new savings accounts in FY23 were acquired through Kotak 811; bank’s digital platform.
This is the portion of new customer that will get hit until KMB resolves RBI’s concerns.
I expect the impact to be lower as the bank will obviously increase focus on offline boarding.