RBI lifts restrictions on Kotak Mahindra Bank

MUMBAI: The Reserve Bank of India (RBI) on Friday lifted the restrictions imposed on Kotak Mahindra Bank regarding onboarding new customers using online and mobile banking channels and issuing new credit cards. The restrictions were imposed in the last week of April after the bank failed to fix its IT system despite repeatedly being asked to do so over two years.

“Having satisfied itself based on the submissions, and remedial measures undertaken by the bank, the RBI has decided to lift the restrictions placed on Kotak Mahindra Bank,” the RBI said in a statement.

Welcoming the move to lift restrictions, the bank spokesperson said that the Kotak will work with the RBI to shortly resume digital onboarding of new customers and issuing fresh credit cards.

Kotak Mahindra Bank’s managing director, Ashok Vaswani had indicated to media soon after declaring December quarter results that the RBI’s restrictions had cost the bank around ?450 crore annually.

Average total deposits grew 15% in the December 2024 quarter as compared to 18.5% in the year ago quarter. Similarly, it lost some credit cards customers post restrictions.

At the end of April 2024 Kotak had issued 60 lakh credit cards which fell to nearly 50 lakh at the end of December 2024. The ban also hindered the growth of its 811 digital banking service, which plays a crucial role in acquiring low-cost deposits.During the period of restrictions, Kotak Mahindra Bank actively engaged in cross marketing its product to existing customers particularly those onboarded through the 811 scheme, the bank management stated in its media briefings.Kotak Mahindra Bank, which briefly lost its spot as fourth largest bank in market value to Axis Bank after the restrictions, has regained its position. Its market cap stood at ?3.86 lakh crore on Wednesday as against Axis’s ?3.11 lakh crore.

The shares fell almost 15% in the falling weeks, but regained after the bank maintained its earnings.

While imposing restrictions, RBI cited “serious deficiencies and non-compliances” by Kotak. The RBI action follows an examination of the bank’s IT systems in 2022 and 2023 and “continued failure on the part of the bank to address these concerns in a comprehensive and timely manner”.