What is the Kotak Mahindra Bank controversy? Here is everything you need to know

It was on April 24 when the Reserve Bank of India barred Kotak Mahindra Bank from a few actions like bringing in new customers on its mobile banking and online channels, along with new issuing credit cards. However, this would not stop the bank from offering these services to the existing customers. The apex bank expressed that such an action was needed because there were several deficiencies that were noted in the IT systems of Kotak Mahindra Bank. Ashok Vaswani, the CEO of Kotak Mahindra Bank recently expressed that KMB was incessantly in dialogue with the apex bank in order to get the required compliance outcomes.

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RBI expressed that it noticed some "serious deficiencies and non-compliances" relating to the IT inventory of KMB, leak prevention strategy, business continuity, user access management, disaster recovery rigor, and more. The regulator observed all these on the basis of the examination of KMB's systems for over two years. As per the Reserve Bank of India, the Kotak Mahindra Bank consistently failed to cater to the issues in a timely and comprehensive manner. The bank is also seen to be 'non-compliant with the subsequent recommendations or the Corrective Action Plans of the Reserve Bank of India. Corrective Action Plans, abbreviated as CAPs are a segment of an intervention scheme of the Reserve Bank of India to strengthen the entities.

According to the Reserve Bank of India, the compliances given by the Kotak Mahindra Bank were either incorrect, or inadequate. Also, the lack of strong risk management systems and IT infrastructure, the online banking channels of the bank significantly suffered. The most recent of such an incident took place on April 15. The customer care representative of the bank expressed on the platform X, formerly Twitter, that the technical services of the bank were actually facing "intermittent slowness". The measures undertaken currently would be considered in an external audit to be commissioned by the bank with the assent of to RBI to analyze the remediation undertaken.

As per the S&P Global Rating, the regulatory action of the RBI may set back the credit growth and profitability of the bank. It further suggested that the credit cards are actually among the higher-yielding target growth section of the Kotak Mahindra Bank. The portfolio surged 52 percent YoY as on the last day of the previous year as compared to the total loan growth of over 19 percent. Action by the Reserve Bank of India could actually make KMB depend more on the physical branch network expansion.