ON A SLIPPERY SLOPE

The recent ban on acquiring new customers online and the issue of credit cards has put a spanner in the operations of the bank. Given that the timeline for its operational turnaround is uncertain, the stock has lost its appeal

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Kotak Mahindra Bank is one of the largest private sector banks in India with over 37 years of experience operating in the banking and financial service The bank has around 1,948 branches spread across India serving more than 5 crore customers. For the latest FY24, the bank reported revenue of around 56,237 crore and was able to generate a net profit of about 18,213 crore. India's 13th richest person, Uday Kotak is the promoter of the bank. He has played a significant role in the evolution of the Indian banking sector. Recently, in September 2023, he resigned as Managing Director and CEO of the bank and now serves as a Non-Executive Director.

RBI Regulatory Action

The bank has been in the news recently due to regulatory action taken by the Reserve Bank of India (RBI), the regulatory body for the Indian banking system. The RBI has banned the bank from acquiring new customers for its online and mobile banking channels. The RBI has also restricted the bank from issuing new credit cards to its customers. This decision was taken after assessing the Kotak Mahindra Bank's operations for the past two years. The RBI found the bank to be deficient in its IT risk and information security governance. Before taking action, the RBI had demanded an explanation, which the bank failed to provide.

Estimated Recovery

The first line of action for Kotak Mahindra Bank would be to improve its IT systems, following which it will have to undergo an external audit and submit a report to the RBI for the ban to be lifted. A similar regulatory ban was imposed by the RBI on India's largest private sector bank, HDFC Bank, in December 2020. It took around nine months for HDFC Bank to upgrade its operations. As regards Kotak Mahindra Bank, it is difficult to predict its release from the ban but in our opinion it may take around the same time as in the case of HDFC Bank.

Regulatory Action Fallout