It happened as anticipated. The Reserve Bank of India (RBI) took major action on Kotak Mahindra Bank, causing the bank’s stock to collapse. When the stock market opened, the bank’s stock opened down by about 10 per cent. The RBI barred the bank from adding new customers and also banned the issuance of new credit cards.
Kotak Mahindra Bank stock opened at Rs 1675 with a fall of 9.08% at the start of trading in the stock market on Thursday. Within just 5 minutes, the fall increased to 10 per cent, and Kotak Bank stock fell by Rs 184 to Rs 1658. Earlier on Wednesday, this banking stock closed on the green mark with an increase.
On Wednesday, at the close of trading in the stock market, Kotak Mahindra Bank shares closed at Rs 1,842.95, up 1.65 per cent or Rs 29.90. However, the RBI’s action on shares from this bank with a market capitalization of Rs 3.66 lakh crore (Kotak Mahindra Bank Market Cap) can be seen today to have an adverse impact.
What RBI said about Kotak Mahindra Bank?
The central bank identified deficiencies and non-compliances in several areas of the bank’s IT system for the years 2022 and 2023 which included “IT inventory management, patch and change management, user access management, vendor risk management, and data security”, as per its statement.
Kotak Mahindra Bank has collaborated with the RBI to boost its IT systems with new technologies.
RBI said, “In the absence of a robust IT infrastructure and IT Risk Management framework, the bank’s Core Banking System (CBS) and its online and digital banking channels have suffered frequent and significant outages in the last two years, the recent one being a service disruption on April 15, 2024, resulting in serious customer inconveniences.”
What have analysts said about the impact of RBI’s order on Kotak Mahindra Bank?
Citi warned that RBI’s action may have a negative impact on the bank’s growth, net interest margin (NIM), as well as fee income. The brokerage rated the stock as ‘neutral’ with a target price of ₹2,040 per share.
Emkay Global also said that the restrictions would impact the business growth, adding, “This will lead to earnings being hit in the medium term. Additionally, the regulatory overhang would delay any hope of a re-rating after the recent management change.”
Jefferies drew parallels between Kotak Mahindra Bank and HDFC Bank as the latter also faced similar regulatory action from the RBI in 2020. The brokerage firm said that if the resolution process for Kotak Mahindra Bank extends beyond six months, it could impact both revenues and costs for the bank.
RBI Bars Kotak Mahindra Bank Onboarding New Customers
The RBI has directed Kotak Mahindra Bank to stop onboarding new customers and issuing fresh credit cards, due to deficiencies in its IT Risk and Information Security Governance for the years 2022 and 2023. The bank failed to address concerns in a timely manner, leading to serious deficiencies and non-compliance in various IT-related areas.
The RBI found a private sector lender to be non-compliant with the corrective action plans issued for 2022 and 2023. The bank’s IT infrastructure and risk management framework were found to be weak, resulting in frequent and significant outages. The RBI also found the bank to be deficient in building necessary operational resilience.
In the past two years, the RBI has been in continuous high-level engagement with the bank on all these concerns to strengthen its IT resilience, but the outcomes have been far from satisfactory, the release said.
The bank has experienced rapid growth in digital transactions, which is causing strain on its IT systems. To prevent outages that could impact customer service and the digital banking ecosystem, the RBI has placed business restrictions on the bank. However, the bank will continue to serve its existing customers, including credit card customers.
