RBI lifts restrictions on Kotak Mahindra Bank after IT compliance

In a relief to private lender Kotak Mahindra Bank, the Reserve Bank of India(RBI) has decided to lift the restrictions placed on the bank on the onboarding of new customers in April 2024. The RBI relief comes following submissions by Kotak Bank, and remedial measures it had undertaken in the recent past, following which the Reserve Bank has decided to lift the curbs placed on it.

The central bank imposed certain business restrictions on Kotak Mahindra Bank on April 24, 2024, and put restrictions on the onboarding of new customers through its online and mobile banking channels, and issuing fresh credit cards. The bank, however, was allowed to provide services to its existing customers, including its credit card customers.

"Subsequently, the bank initiated remedial measures to address the supervisory concerns and submitted compliances to the Reserve Bank. The bank also commissioned an external Audit, with prior approval of RBI, to validate the compliances. Now, having satisfied itself based on the submissions, and remedial measures undertaken by the bank, the Reserve Bank, has decided to lift the aforementioned restrictions placed on Kotak Mahindra Bank Limited. A detailed communication has been issued to the bank in this regard," the RBI says in a statement.

The banking regulator had alleged concerns over the examination of Kotak Mahindra Bank's IT infrastructure in the years 2022 and 2023 and its "continued failure" to address these concerns.

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. Kotak Bank was found to be "deficient" in its IT Risk and Information Security Governance, contrary to requirements under regulatory guidelines, during that period.

In the absence of a robust IT infrastructure and IT Risk Management framework, Kotak Mahindra Bank’s Core Banking System (CBS) and its online and digital banking channels had suffered frequent and significant outages in the last two years, the RBI found.

For Q3 FY25, Kotak Mahindra Bank reported a 10% growth in net profit to ₹4,701.02 crore, compared to ₹4,264.78 crore in the same period last year. Sequentially, however, net profit declined by 7% from ₹5,044.05 crore in the September quarter of FY25. The bank’s net interest income rose by 14.75% to ₹16,633.14 crore, compared to ₹14,494.96 crore in the corresponding quarter of the previous fiscal year. On a quarter-on-quarter basis, interest income improved marginally from ₹16,426.97 crore in Q2 FY25. In terms of asset quality, the gross non-performing asset (NPA) ratio increased slightly to 1.51% in Q3 FY25 from 1.48% in Q2 FY25 but improved from 1.68% in Q3 FY24. Meanwhile, the net NPA ratio dropped to 0.44% from 0.45% as of September 30, 2024, and 0.36% as of December 31, 2023.

Kotak Mahindra Bank shares closed 1.35% higher at ₹1,943.80 on the BSE, up 1.35% from the previous closing price of ₹1917.35.