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RBI Restrains Kotak Bank; No Issuing Of New Credit Cards & Onboarding Clients Digitally

Bank loses its status as fourth largest banking stock on Dalal Street to its rival Axis Bank in market value terms

Fearing potential repercussions of the Reserve Bank of India’s latest action against Kotak Mahindra Bank, one of the top private lenders in the country, directing it to halt the issuance of fresh credit cards and onboarding new clients through digital channels, the bank’s share plunged as much as 10% during early trading on Thursday (25.04.2022). This decline marks the sharpest single-day drop for the stock since March 23, 2020.

RBI Chief General Manager Yogesh Dayal stated in a press release issued on Thursday (24.04.2024): “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.”

He further informed: “In the absence of a robust IT infrastructure and IT Risk Management framework, the bank’s Core Banking System (CBS) and its online and digital banking channels have suffered frequent and significant outages in the last two years, the recent one being a service disruption on April 15, 2024, resulting in serious customer inconveniences. The bank is found to be materially deficient in building necessary operational resilience on account of its failure to build IT systems and controls commensurate with its growth.

“In the past two years, the Reserve Bank has been in continuous high-level engagement with the bank on all these concerns with a view to strengthening its IT resilience, but the outcomes have been far from satisfactory. It is also observed that, of late, there has been rapid growth in the volume of the bank’s digital transactions, including transactions pertaining to credit cards, which is building further load on the IT systems.”

Maintaining that the action was in the larger interests of the customers, Dayal shared: “The Reserve Bank, therefore, has decided to place certain business restrictions on the bank in the interest of customers and to prevent any possible prolonged outage which may seriously impact not only the bank’s ability to render efficient customer service but also the financial ecosystem of digital banking and payment systems.”

Kotak Bank reassurance to customers

Despite the specific regulatory directives, Kotak Mahindra Bank remains confident that they will not significantly impact its overall business.

In a filing to the stock exchange, the bank is reported to have stated that it 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 has reassured its existing customers of uninterrupted services, including credit card, mobile and net banking. The bank’s branches will continue to onboard new customers and provide all services except for the issuance of new credit cards.

Axis dislodges Kotak from No. 4

While Kotak Mahindra Bank’s shares were trading 10%, lower, those of its rival Axis Bank were trading 4% higher.

According to Economic Times, Kotak Mahindra Bank has now lost its status as the fourth largest banking stock on Dalal Street to private sector rival Axis Bank in market value terms.  Resultantly, Kotak’s market capitalisation fell to Rs 3.3 lakh crore while that of Axis Bank was higher at Rs 3.4 lakh crore.

Amitabh Chaudhry re-appointed Axis MD & CEO

Meanwhile, Axis Bank’s board has approved the re-appointment of Amitabh Chaudhry as MD & CEO for three more years, effective January 2025, subject to RBI approval. He had joined in 2019.



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