Saturday, May 4, 2024

 What’s happening in Kotak Mahindra Bank?

May 4, 2024

Bank Workers Unity 

The fourth largest private sector bank viz. Kotak Mahindra Bank is in the news, recently, for all the wrong reasons.

It is an institution which is always in the good books of the Union Government.   In March 2017, Kotak Mahindra Bank launched an online digital savings account called Kotak 811, the number denoting the date on which Prime Minister Narendra Modi announced demonetisation in 2016, which according to Uday Kotak was “the day that changed India”.  Uday Kotak is the promoter and single largest shareholder of Kotak Mahindra Bank, with a 25.71 percent stake.  The Mumbai based Infina Finance promoted by the Bank donated electoral bonds worth Rs.60 crore to the BJP in three years from 2019 to 2021.  In 2018 the Bank dragged the RBI to Bombay High Court on the issue of shareholding of the promoter which ended in 2020 with the RBI yielding to the pressure and allowing the promoter to hold 26 percent of shares (to own a higher stake than what the regulator had stipulated earlier), but had voting rights capped at 15%. 

Presently, the RBI, on April 24, 2024 has prohibited the Bank from on boarding new customers through its online and mobile banking channels and issuing fresh credit cards, citing supervisory concerns.  According to the regulator, serious deficiencies and non-compliance were observed in various areas, including IT inventory management, patch and change management, user access management, vendor risk management, data security, data leak prevention strategy, business continuity, disaster recovery rigor and drill.  For two consecutive years the Bank was assessed to be deficient in its IT Risk and Information Security Governance and was found to be non-compliant with Corrective Action Plans issued by the RBI.  The compliance submitted by the Bank were found to be either inadequate, incorrect or not sustained.

The stricture of the RBI on the Bank would result in the inability of the lender to on-board new customers through its online and mobile banking channels and could severely impact the new retail customer additions for the bank, given its smaller branch network compared to peers and higher reliance on digital channels. 

The Bank’s overdependence on digital channels for on boarding new customers gets seriously affected due to the RBI’s stricture with its Kotak 811 zero balance digital savings accounts unable to add new customers.

All is not well within private banks which are known for their flamboyancy and adventurism.  Four years earlier Yes Bank, the new generation private bank, was on the verge of collapse and it was the SBI under advice from the RBI steadied the Bank with adequate investments and quality man power.  There are many such instances like the present one in Kotak Mahindra Bank which are overcome with the timely intervention and correction by the RBI and Public Sector Banks and, some people of India, advocate privatisation, oblivious to the ills of privatisation.