Relief for Kotak Bank: RBI lifts bar on onboarding credit card, online customers

Mumbai: The Reserve Bank of India (RBI) on Wednesday lifted the restrictions on Kotak Mahindra Bank, allowing it to issue new credit cards and onboard new customers through its website and mobile app, nearly 10 months after an embargo was imposed on it.

“Having satisfied itself based on the submissions, and remedial measures undertaken by the bank, the Reserve Bank, has decided to lift the afore-mentioned restrictions placed on Kotak Mahindra Bank Limited,” said RBI in its press release.

In April last year, RBI had asked the bank to cease and desist these services after it found deficiencies and non-compliances in Kotak Mahindra Bank’s information technology (IT) inventory management, patch and change management, user access management, vendor risk management and data security, among other issues, for 2022 and 2023.

Also read | Behind KVS Manian’s sudden exit from Kotak Mahindra Bank

“We welcome the Reserve Bank of India’s (RBI) decision to lift the business restrictions on Kotak Mahindra Bank. This decision follows the Bank’s successful implementation of remedial measures and compliance validation through an external audit,” said a spokesperson for Kotak Mahindra Bank. “We will continue to work closely with the RBI to shortly resume digital onboarding of new customers and issuing fresh credit cards.”

RBI’s embargo had come a few months after the bank’s new chief executive officer Ashok Vaswani took charge in January last year. The bank undertook remedial measures to address the supervisory concerns and submitted compliances to RBI, said the regulator. It also appointed Grant Thornton Bharat as the external auditor as part of measures to plug gaps in its IT systems.

In its third-quarter earnings call, Vaswani said that the bank had made progress on strengthening core banking resilience, business continuity, cybersecurity and digital payments framework. During these 10 months, the private sector lender also focussed on defining the group’s go-to-market tech strategy, launched the new Kotak and 811 apps and also digitized and automated the customer journeys, he said.

Also read | Ashok Vaswani to steer Kotak Mahindra Bank’s bid for digital leadership

Vaswani had earlier mentioned that the bank had beefed up the internal team with “resources from Accenture, Infosys, Oracle and Cisco and focused on relentless execution”.

Last month, Kotak Mahindra Bank’s Milind Nagnur stepped down as chief technology officer and chief operating officer, citing personal reasons. Nagnur was the key official who was driving digital transformation in the bank.

Since April last year, Kotak’s credit card business has been contracting sequentially. Its credit card business at the end of December 2024 stood at ₹14,505 crore. The credit card portfolio, which accounted for 4% of the total loan book at the time of the ban, has moderated to 3.4% currently. Even as its credit card business slowed down, the bank had also seen an increase in stress in the existing portfolio.

The ban had also impacted the Kotak 811 business, which allowed customers to open zero-balance digital savings accounts with the help of video KYC. The 811 business had given the bank access to low-cost granular deposits, and the ban hurt the most as it came at a time when the banking system was facing a deposit crunch.

Also read | Competitiveness, not protectionism, is the key to our future: Uday Kotak

“Definitely the embargo has hurt, and I am hoping we get out of embargo soon so that we can get back to our ways. And then once we get back to it, we are going to come out, I believe we are going to come out much stronger on both 811 as well as in other products, and that will be fun to actually go back to proper business,” said Vaswani in the earnings call.

“This is a highly positive development for the bank, considering 95% of its new personal loan volumes were being onboarded through Kotak 811, while savings bank transaction volumes stood at approximately 98% as of 3QFY24. The removal of restrictions is expected to drive renewed momentum in digital acquisitions and support overall business growth,” said Asutosh Mishra, head institutional equities research, Ashika Stock Broking. “This move is expected to provide a substantial boost to the bank’s high-yielding portfolio, thereby supporting margin expansion.”

Shares of Kotak Mahindra Bank closed 1.32% higher at ₹1,943.95 on Wednesday.

And read | Kotak Bank’s rollercoaster: From setbacks to surging Q4 performance