Kotak Mahindra Bank shares log lowest close in 22 months after RBI ban

Kotak Bank share price today, Kotak Bank share price target, Kotak Bank RBI news: Kotak Mahindra Bank shares closed 10.9 per cent lower at Rs 1,643 apiece on Thursday, their lowest closing level since June 29, 2022, a day after the Reserve Bank of India (RBI) announced certain business restrictions on the private sector lender. During the session, the stock plummeted as much as 12.1 per cent to Rs 1,620 apiece, a level last seen on November 4, 2020.  

The Reserve Bank of India (RBI) has barred Kotak Mahindra Bank from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards immediately after the regulator found "serious deficiencies" in the lender's IT risk management.

These actions, the RBI said, are necessitated based on significant concerns arising out of the Reserve Bank's IT examination of the bank for the years 2022 and 2023 and the continued failure on the part of the bank to address these concerns in a comprehensive and timely manner.

What did Kotak Mahindra Bank say?

In a statement regarding the supervisory action against Kotak Mahindra Bank, the RBI said: "Serious deficiencies and non-compliances were observed in the areas of IT inventory management, patch and change management, user access management, vendor risk management, data security and data leak prevention strategy, business continuity and disaster recovery rigour and drill, etc."

The Kotak Mahindra Bank has been directed "to cease and desist," with immediate effect, from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards. The bank shall, however, continue to provide services to its existing customers, including its credit card customers. "The bank shall, however, continue to provide services to its existing customers, including its credit card customers," the RBI said.

For two consecutive years, the bank was assessed to be deficient in its IT risk and information security governance, contrary to requirements under regulatory guidelines, the RBI added.

"During the subsequent assessments, the bank was found to be significantly non-compliant with the Corrective Action Plans issued by the Reserve Bank for the years 2022 and 2023, as the compliances submitted by the bank were found to be either inadequate, incorrect or not sustained," the RBI said.

In the absence of a robust IT infrastructure and IT risk management framework, the RBI said the bank's Core Banking System (CBS) and its online and digital banking channels have suffered frequent and significant outages in the last two years, the most recent being a service disruption on April 15, 2024, resulting in serious customer inconveniences.

"The bank is found to be materially deficient in building necessary operational resilience on account of its failure to build IT systems and controls commensurate with its growth," the central bank said.

The RBI further said that in the past two years, it has been in continuous high-level engagement with the bank on all these concerns with a view to strengthening its IT resilience, but the outcomes have been far from satisfactory.

It is also observed that, of late, there has been rapid growth in the volume of the bank's digital transactions, including transactions pertaining to credit cards, which is building further load on the IT systems, the Reserve Bank said.

"The Reserve Bank, therefore, has decided to place certain business restrictions on the bank as mentioned above, in the interest of customers and to prevent any possible prolonged outage which may seriously impact not only the bank's ability to render efficient customer service but also the financial ecosystem of digital banking and payment systems," the statement said.

The restrictions imposed will be reviewed upon completion of a comprehensive external audit to be commissioned by the bank with the prior approval of RBI, and remediation of all deficiencies that may be pointed out in the external audit as well as the observations contained in the RBI inspections, to the satisfaction of the Reserve Bank.

Further, these restrictions are without prejudice to any other regulatory, supervisory or enforcement action that may be initiated against the bank by the Reserve Bank, the central bank said.

Kotak Mahindra Bank Q4 results 

Kotak Mahindra Bank is slated to announce the consolidated and standalone audited financial results for the quarter and financial year ended March 31, 2024, on Saturday, May 4.

Kotak Mahindra Bank share price target

Jefferies has maintained a hold call on Kotak Mahindra Bank. The brokerage has trimmed the target on the bank stock to Rs 1,970 from Rs 2,050. The brokerage noted the following key points:

• RBI has pointed to material gaps in banks’s digital and security platforms over the past 2 years
• HDFC bank faced similar actions in 2020 and it took 9-15 months to clear issues
• If resolution takes > 6 months, it could affect revenues and costs
• Credit cards have been among the fastest growing segments for Kotak with 20 per cent YoY growth in customers and 5 per cent growth in values

With inputs from PTI

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