On Wednesday 24 April, the Reserve Bank of India prohibited Kotak Mahindra Bank from taking new customers onboard on online and mobile banking channels. Not only Reserve Bank of India has prohibited taking new customers online but also Reserve Bank has also prohibited the Bank from issuing new credit cards and that too immediately. Till March end, Kotak Mahindra Bank has issued 59.54 Lakhs credit cards.
Why did the Reserve Bank of India do that?
The Reserve Bank of India has done this under Section 35A of the Banking Regulation Act, 1949, which gives the right to the RBI to inspect the books of the banking company at any time and provide soundness and stability to the banking community which ensures customer confidence in banking.
What was RBI’s reason for doing this?
This action was taken after RBI’s IT department raised some concerns in the company book of private sector lenders in 2022 and 2023 and the Bank failed to address them.
RBI says that substantial weakness and violation of regulation have been observed in the bank in IT management and it needs improvement in many things like business continuity, disaster recovery, and data leak prevention strategy. RBI says that at the time of assessment, the bank has been non-compliant and that the action plans issued by RBI for 2022 and 2023 and the obituaries submitted by the bank are incorrect, and not sustained or inadequate.
For the last two years, RBI has been conveying this thing to the Bank, and has been observed that the digital transactions of the bank have increased very rapidly apart from this, the credit card transactions have also increased a lot due to which this whole load is coming to IT sector. Reserve Bank has imposed some restrictions on the bank and it can affect the credibility of the bank which will make a lot of difference in its customer service and will also make a difference in the financial ecosystem.
RBI says that all these things will not affect the existing customers of the bank who will continue to take banking services as before, whether they are digital payments or credit card customers.
What’s the take of Kotak Mahindra Bank on this ban?
Kotak Bank says that the bank will continue to take new customers as before, only now they can visit the branches through offline mediums and all other banking services will remain as before apart from new credit card issuance. The bank says that “the bank took necessary steps to strengthen its IT systems and resolved the remaining issues with RBI as soon as possible and the remaining services as before will also start soon. The bank has assured its existing customers that they will continue to provide uninterrupted services, mobile banking, net banking, and credit card services as before.
Stock market after this ban?
Kotak Mahindra Bank has suffered a lot due to this decision by RBI. Mutual funds have caused a loss of Rs 4281 crore to Kotak Mahindra Bank which is a 10% overall loss. SBI holds the largest stake in Kotak Mahindra mutual fund which is approximately 7.52 crore shares whose value was Rs 13,855 crore and now its value has gone down to Rs 12,600 crore due to which SBI has suffered a loss of Rs 1200 crore. SBI is not the only one to bear the loss some other banks are also included like UTI mutual fund, HDFC mutual fund, and ICICI prudential mutual fund and they have incurred losses of approx Rs 486 crore, 462 crores, and 461 crores respectively.
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This ban has directly benefited AXIS Bank. Where Axis Bank was earlier behind Kotak Mahindra Bank in growth, Kotak Bank’s shares have fallen by 19% due to which Axis Bank has now become the fourth largest lender in capitalization. This is the first time since September 2015 that Axis Bank has overtaken Kotak Mahindra Bank in capitalization. Long ago the capitalization of both the banks was Rs. 1.5 crore each.
Where in 2021 the Axis Bank market was half the size of Mahindra Bank and since then Axis Bank has made a profit of approx 1.4 lakh crore in market capitalization, whereas in the market Mahindra Bank has made a loss of 46,000 crore in market capitalization and if it remains banned for a long time This will impact Kotak Mahindra Bank very heavily.
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