Kotak Mahindra Bank faced a significant setback as its shares plummeted by 10% following the Reserve Bank of India’s (RBI) directive to halt the issuance of new credit cards and the acquisition of fresh customers through online channels.
The ban, imposed by the RBI, struck a blow to Kotak Mahindra, India’s fourth-largest bank by market capitalization. This marked the steepest decline in the bank’s shares in four years, with the RBI citing governance issues and associated risks. The central bank’s decision was primarily attributed to concerns surrounding Kotak Mahindra’s technology infrastructure.
The announcement of the ban poses a considerable challenge for Kotak Mahindra’s newly appointed Chief Executive, Ashok Vaswani, who assumed the role from the bank’s billionaire founder, Uday Kotak, on January 1. Vaswani acknowledged the significance of customer acquisition for the bank’s growth trajectory and emphasized ongoing investments in technology. However, he acknowledged the regulatory focus on mitigating risks within the banking sector.
In response to the RBI’s directive, issued on Wednesday (April 24), the central bank highlighted deficiencies and instances of non-compliance with protocols over the past two years. These deficiencies encompassed areas ranging from data security and leakage prevention strategies to risk management associated with vendor relationships.
The regulatory intervention underscores the imperative for Kotak Mahindra Bank to address shortcomings and fortify its governance mechanisms to align with regulatory expectations. As the bank navigates this period of regulatory scrutiny, stakeholders will closely monitor developments to assess the bank’s response and its implications for the broader banking industry landscape.