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Mahesh

08/05/24 06:25 AM IST

The Kotak Mahindra Bank controversy

In News
  • The Reserve Bank of India (RBI) on April 24 barred Kotak Mahindra Bank (KMB) from onboarding new customers on its online and mobile banking channels, and issuing fresh credit cards.
RBI actions
  • RBI observed “serious deficiencies and non-compliances” concerning KMB’s IT inventory and user access management, data leak and leak prevention strategy, business continuity and disaster recovery rigour and drill, among other things.
  • This was based on the regulator’s examination of the private bank’s systems for two years, that is, 2022 and 2023.
  • The regulator said KMB continually failed to address concerns in a “comprehensive and timely manner”.
  • The bank was also deemed non-compliant with RBI’s subsequent recommendations or ‘Corrective Action Plans’ (CAPs). CAPs are part of an intervention scheme of the RBI to ensure robustness of regulated entities.
  • As per the RBI, the compliances submitted by KMB were either “inadequate, incorrect or not substantiated”.
  • Further, in the absence of robust IT infrastructure and risk management systems, its online and digital banking channels have suffered “frequent and significant outages in the last two years.
Bank Financials
  • According to S&P Global Ratings, the regulatory action may set back the bank’s credit growth and profitability.
  • It added that credit cards are among the higher-yielding target growth segment of the bank.
  • The portfolio grew 52% YoY as on December 31 last year compared with a total loan growth of 19%.
  • Action by the Reserve Bank of India (RBI) this week could push the bank to rely more on physical branch network expansion to supplement growth thus entailing higher operating costs.
  • However, the agency maintained that RBI’s action will not “materially affect” its ratings.
  • This is because credit cards accounted for only 4% of the bank’s total loans at the end of the year and it would still be able to cross-sell its products.
  • The banks’ net profit in the fourth quarter rose 18% to ₹4,133 crore from ₹3,496 crore in the year-ago period. This was on the back of a 13% YoY growth in net interest income at ₹6,909 crore.
  • Kotak Mahindra however had plans to continue investing in their card franchise. As stated in an investor call earlier, its overall credit card advances grew by over 50% on a YoY basis.
  • The plan may now be put on hold. Brokerage services provider Motilal Oswal observed that the ban would bother the growth trajectory of the bank’s retail products.
  • It would also adversely impact their margins and profitability. Its note explained that KMB’s growth trajectory for retail products was aided by a higher mix of digital sourcing and a thrust on unsecured products.
Source- The Hindu

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