On April 24, the RBI barred Kotak Mahindra Bank from issuing new credit cards and onboarding customers through online and mobile banking channels due to serious shortcomings in its information technology infrastructure. These issues have led to frequent outages, including a major disruption on April 15, 2024.
Axis Bank has surpassed Kotak Mahindra Bank to become the fourth-largest lender in India.
The banking regulator imposed business restrictions on the private sector lender due to frustration with the bank’s lack of effort in addressing serious non-compliances in its digital operations. Kotak’s management previously aimed to increase the mix of unsecured loans to the mid-teens over the current fiscal year. The RBI noted that the rapid growth in the volume of the bank’s digital and credit card transactions has further strained its IT systems.
Analysts suggest that the RBI ban will disrupt the growth trajectory of retail products and adversely impact overall margins and profitability.
These restrictions will be reviewed after a comprehensive external audit commissioned by the bank with prior approval from the RBI. The bank will need to remediate all deficiencies identified in the external audit, as well as address the observations from the RBI Inspection.
The company is expected to address its compliance issues promptly.
Should you invest in Kotak Mahindra Bank?
Investing in Kotak Mahindra Bank presents a promising opportunity as the company is likely to rectify its compliance issues soon. Once these are addressed, the company’s share price is expected to rebound.