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In April 2024, the RBI had instructed the bank to halt the onboarding of new customers through its online and mobile banking channels and to cease issuing new credit cards.
Following this, Kotak Mahindra Bank took corrective actions to address the RBI’s concerns and submitted the required compliance reports. The bank also conducted an external audit with prior approval from the RBI to confirm its adherence to the required standards.
After reviewing the bank’s submissions and the corrective actions taken, the RBI announced it was lifting the restrictions.The RBI had earlier taken supervisory action against Kotak Mahindra Bank under Section 35A of the Banking Regulation Act due to significant issues identified during an IT examination of the bank for 2022 and 2023.
The central bank had raised concerns over the bank’s delayed response to these issues. Notable deficiencies included problems in IT inventory management, patch and change management, user access management, vendor risk management, data security, data leak prevention, business continuity, and disaster recovery preparedness.
Welcoming the development, a Kotak Bank spokesperson said, “We welcome the Reserve Bank of India’s (RBI) decision to lift the business restrictions on Kotak Mahindra Bank. This decision follows the Bank’s successful implementation of remedial measures and compliance validation through an external audit. We will continue to work closely with the RBI to shortly resume digital onboarding of new customers and issuing fresh credit cards.”
What Jay Kotak said on RBI lifting curbs on KMB“It’s the first I’m hearing of it; it’s definitely good news. However, I cannot comment on anything related to the bank at this point. It’s obviously big news, so I need some time to process it. That said, I believe the bank has done a lot over the last 10 months in terms of technology,” Jay Kotak, co-head of Kotak811, the digital banking arm of Kotak Mahindra Bank, told CNBC-TV18.
The background: KMB worked closely with RBI
In an earlier CNBC-TV18 report, Kotak Mahindra Bank’s Managing Director and CEO Ashok Vaswani revealed that the lender was closely collaborating with the regulator, with frequent updates on their progress.
“We’ve been in continuous touch with the RBI, sometimes even every week, getting their guidance and ensuring we’re on the right path,” Vaswani told CNBC-TV18.
He explained that the bank has taken the opportunity presented by the RBI’s restrictions to leap ahead in technology: “Like in every crisis, there’s an opportunity. We’ve taken this as a chance to leapfrog and make our systems resilient and relevant for the future.”
He shared that the bank is now spending approximately 11% of its operational expenditure on technology, up from 10%, and expects an annual cost of ₹450 crore to implement the changes required by the RBI.
Shares of Kotak Mahindra Bank settled 1.4% higher at ₹1,945.50 on the NSE. The one-year return on the scrip is nearly 14%, with the private lender also being the top performer on the Bank Nifty.
