The Reserve Bank of India’s decision to bar Kotak Mahindra Bank from onboarding new customers through its digital platforms and issuing fresh credit cards was attributed to concerns over governance and risk issues related to the bank’s technology systems. This move resulted in a sharp decline of up to 13% in the bank’s shares, impacting its largest shareholder, Uday Kotak, whose wealth dropped by $1.3 billion according to the Bloomberg Billionaires Index. As of April 24, his net worth was $14.4 billion. Additionally, Axis Bank Ltd. surpassed Kotak Mahindra Bank’s market capitalization for the first time since September 2016, following a surge in its shares due to earnings that exceeded analysts’ expectations.
The RBI highlighted deficiencies and non-compliance in various processes over a two-year period at Kotak Mahindra Bank, particularly mentioning issues like inadequate data security and leak prevention measures, as well as vendor risk management.
Kotak Mahindra Bank responded by stating that it is actively adopting new technologies to enhance its IT systems and is collaborating with the RBI to promptly address the identified issues.
This development presents a significant challenge for Kotak Mahindra Bank’s new Chief Executive Officer, Ashok Vaswani. Ashutosh Mishra, a banking analyst at Ashika, noted that the ban on online customer acquisition will likely hinder the bank’s growth, especially considering its relatively slower pace in expanding physical branch networks. The RBI’s decision is expected to generate negative sentiment towards the bank in the near term.
