RBI Lifts Business Restrictions on Kotak Mahindra Bank After Remedial Action
New Delhi, October 2023 – Ten months after the Reserve Bank of India (RBI) imposed business restrictions on Kotak Mahindra Bank due to concerns regarding its information technology systems, the regulator announced on Wednesday that it has revoked the embargo. This decision follows the bank’s implementation of corrective measures that satisfied the RBI’s supervisory requirements.
Background of the Restrictions
In April of last year, Kotak Mahindra Bank faced limitations that prohibited it from acquiring new customers through its online and mobile banking channels as well as from issuing new credit cards. The RBI cited the bank’s failure to address deficiencies in its IT systems, which led to repeated outages in its core banking operations and digital platforms over the preceding two years. These incidents had caused significant inconvenience for customers, prompting regulatory scrutiny.
According to the RBI, assessments had revealed that Kotak Mahindra Bank was “deficient in its IT Risk and Information Security Governance,” contradictory to regulatory guidelines. The central bank found that the lender was “significantly non-compliant” with corrective action plans it had issued for 2022 and 2023, noting that the compliance reports submitted by the bank were often inadequate or incorrect.
Remedial Actions Taken
In response to the restrictions, Kotak Mahindra Bank implemented a series of remedial measures to address the RBI’s concerns. The bank took proactive steps, including commissioning an external audit – with prior approval from the RBI – to validate its compliance efforts. The RBI acknowledged these actions in its statement, indicating that the regulator was satisfied with the submissions and the steps taken by the bank.
RBI Lifts Restrictions
The RBI’s decision to lift the restrictions allows Kotak Mahindra Bank to resume accepting new customers digitally and issuing new credit cards. This marks a significant turning point for the lender as it navigates the aftermath of the restrictions. “We welcome the Reserve Bank of India’s decision to lift the business restrictions on Kotak Mahindra Bank,” a bank spokesperson stated, emphasizing the successful implementation of remedial strategies and external validation.
This change means that the “cease and desist” order affecting Kotak Mahindra Bank is now removed; the only remaining restrictions apply to Paytm Payments Bank.
Impact of the Restrictions
The restrictions had a noticeable impact on Kotak Mahindra Bank’s operations. As of December 2024, the lender’s credit card outstanding had declined significantly, dropping by nearly one million to 5.02 million from over six million before the restrictions were imposed. Additionally, the bank reported a decline in its net interest margin (NIM), which fell from 5.28% in the fourth quarter of FY24 to 4.93% in the third quarter of FY25.
The timing of the restrictions coincided with the appointment of Ashok Vaswani as the bank’s managing director and chief executive officer in January 2023, imposing significant challenges early in his tenure.
Regulatory Philosophy
During a recent press conference following the monetary policy announcement, RBI Governor Sanjay Malhotra clarified that imposing restrictions is a measure of last resort used only in extreme circumstances, emphasizing the regulatory efforts to ensure compliance and banking stability.
As Kotak Mahindra Bank prepares to regain its footing in the market, the lifting of these restrictions is expected to bolster its customer acquisition and growth strategies moving forward.
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