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Explained: Why the RBI took action against Kotak Mahindra Bank, and what it means for you



Explained: Why the RBI took action against Kotak Mahindra Bank, and what it means for you

On April 24, The Reserve Bank of India (RBI) told Kotak Mahindra Bank (KMB) to stop adding new customers through online and mobile banking and making new credit cards under Section 35A of the Banking Regulation Act, 1949. Why? Because RBI found some big problems during its checks on the bank’s tech stuff in 2022 and 2023.

What Were the Worries Raised by RBI?

RBI found lots of problems with how the bank handled its tech platforms, such as keeping track of IT details, changing and updating things, and managing who gets to use what. Even though RBI told the bank to fix these issues, the bank didn’t do it properly.

Did Customers Face Problems?

Indeed. A lot of times the banks main computer system and online systems stopped working. This made it really hard for customers to do their banking activities. The bank also didn’t have good plans in place to handle big problems, such as if their systems went down and needed to be brought back online.

Did RBI Talk to the Bank Before Doing This?

Yes. The RBI has been talking to the bank a lot about these issues. Plus, with more and more people using the bank’s online platform, it put even more stress on their systems.

What About People Who Already Have Accounts?

Don’t worry, if you’re already a customer of Kotak Mahindra Bank, you can still use their services, including your credit card.

How Did Kotak Mahindra Bank Respond?

The bank said they’ll still let new people open accounts at their branches and use all their services except getting new credit cards. They promised to fix the problems quickly with RBI’s help, so existing customers won’t face any more issues.

Kotak Mahindra Bank CEO Worried About RBI’s Restrictions, Prioritising Bank’s Image

Ashok Vaswani, the Managing Director and CEO of Kotak Mahindra Bank, addressed concerns regarding the potential impact of Reserve Bank of India (RBI) restrictions on the bank’s profitability. Vaswani estimated the impact to be in the range of ₹300 crore to ₹400 crore on the bank’s profit before tax, emphasizing that this estimation involved numerous assumptions. He responded to analysts’ queries regarding the perceived lack of significant impact on the bank, considering past presentations highlighting digital initiatives as strong drivers for customer acquisition.

Following the RBI’s decision on April 24 to restrict Kotak Mahindra Bank from onboarding new customers online or through mobile apps and issuing new credit cards until IT infrastructure issues were resolved, the bank faced challenges. Despite this, KMB reported impressive financial results, with an 18% rise in net profit to ₹4,133 crore in the fourth quarter and a 26% growth to ₹13,782 crore for the fiscal year 2023-24.

Vaswani acknowledged potential impacts on the bank’s franchise and reputation due to the RBI’s restrictions, although he anticipated limited financial repercussions. He expressed determination to restore normal business operations swiftly and robustly.