{"id":40835,"date":"2025-11-08T05:59:05","date_gmt":"2025-11-08T00:29:05","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=40835"},"modified":"2025-11-10T12:16:39","modified_gmt":"2025-11-10T06:46:39","slug":"kotak-mahindra-bank-controversy","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/kotak-mahindra-bank-controversy\/","title":{"rendered":"The Kotak Mahindra Bank Controversy"},"content":{"rendered":"<h2>What\u2019s in today\u2019s article?<\/h2>\n<ul>\n<li>Why in News?<\/li>\n<li>Why were Actions on KMB Necessitated?<\/li>\n<li>Similar Actions by RBI in the Past<\/li>\n<li>What will be the Impact of RBI\u2019s Actions on KMB?<\/li>\n<\/ul>\n<h2>Why in News?<\/h2>\n<ul>\n<li>The Reserve Bank of India (RBI) barred Kotak Mahindra Bank (KMB) from onboarding new customers on its online and mobile banking channels, and issuing fresh credit cards.<\/li>\n<li>It would however be allowed to provide these services to its existing customers.<\/li>\n<\/ul>\n<h2>Why were Actions on KMB Necessitated?<\/h2>\n<ul>\n<li><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/reserve-bank-of-india\/\" target=\"_blank\">RBI<\/a> observed \u201c<strong>serious deficiencies and non-compliances<\/strong>\u201d concerning KMB\u2019s &#8211;\n<ul>\n<li>IT inventory and user access management,<\/li>\n<li>Data leak and leak prevention strategy,<\/li>\n<li>Business continuity and<\/li>\n<li>Disaster recovery rigour and drill, etc.<\/li>\n<\/ul>\n<\/li>\n<li>This was based on the regulator\u2019s examination of the private bank\u2019s systems for two years (2022 and 2023).<\/li>\n<li><strong>The regulator said KMB continually failed to address concerns<\/strong> in a \u201ccomprehensive and timely manner\u201d.<\/li>\n<li>The bank was also deemed non-compliant with RBI\u2019s subsequent recommendations or \u2018<strong>Corrective Action Plans<\/strong>\u2019 (CAPs).\n<ul>\n<li>CAPs are part of an intervention scheme of the RBI to ensure robustness of regulated entities.<\/li>\n<li>As per the RBI, the compliances submitted by KMB were either \u201c<strong>inadequate, incorrect or not substantiated<\/strong>\u201d.<\/li>\n<\/ul>\n<\/li>\n<li><strong>In the absence of robust IT infrastructure<\/strong> and risk management systems, KMB\u2019s online and digital banking channels have suffered <strong>frequent and significant outages in the last two years<\/strong>.\n<ul>\n<li>In the latest incident, the bank\u2019s customer care representative informed that its technical servers were experiencing \u201c<strong>intermittent slowness<\/strong>\u201d.<\/li>\n<\/ul>\n<\/li>\n<li><strong>The current measures would be reviewed<\/strong> in an external audit to be commissioned by the bank with RBI\u2019s approval to assess remediation undertaken.<\/li>\n<\/ul>\n<h2>Similar Actions by RBI in the Past:<\/h2>\n<ul>\n<li>The RBI has been particularly wary of how digital banking and the overall financial landscape functions.<\/li>\n<li>In (December) 2020, the regulator had ceased <strong>HDFC <\/strong>from launching any new digital products and sourcing new credit card consumers.\n<ul>\n<li>This was also based on a two-year assessment that had come across recurrent incidents of outage in its internet and mobile banking platforms, alongside payment utilities.<\/li>\n<li><strong>The restrictions were lifted more than a year later<\/strong> in (March) 2022 after a successful remediation.<\/li>\n<\/ul>\n<\/li>\n<li>On similar lines, the RBI in (October) 2023 directed the <strong>Bank of Baroda<\/strong> to suspend any fresh onboarding of customers onto its \u2018bob World\u2019 mobile application.\n<ul>\n<li>This was also based on \u201c<strong>certain material supervisory concerns<\/strong>\u201d with the RBI demanding the rectification of observed deficiencies.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2>What will be the Impact of RBI\u2019s Actions on KMB?<\/h2>\n<ul>\n<li><strong>KMB\u2019s growth trajectory<\/strong> for retail products was aided by a higher mix of digital sourcing and a thrust on unsecured products.\n<ul>\n<li><strong>For perspective<\/strong>, the private lender sold 95% of their personal loans and 99% of their (fresh) credit cards by digital means.<\/li>\n<li>The banks\u2019 net profit in the fourth quarter rose 18% to \u20b94,133 crore from \u20b93,496 crore in the year-ago period. This was on the back of a 13% YoY growth in net interest income at \u20b96,909 crore.<\/li>\n<\/ul>\n<\/li>\n<li>According to S&amp;P Global Ratings, <strong>the regulatory action may set back the bank\u2019s credit growth and profitability<\/strong>.<\/li>\n<li>It added that <strong>credit cards <\/strong>are among the higher-yielding target growth segment of the bank. The portfolio grew 52% YoY as on December 31 last year compared with a total loan growth of 19%.<\/li>\n<li>Action by the RBI could push the bank to <strong>rely more on physical branch network expansion <\/strong>to supplement growth thus entailing higher <strong>operating costs<\/strong>.<\/li>\n<li>However, the agency maintained that RBI\u2019s action <strong>will not \u201cmaterially affect\u201d its ratings.<\/strong>\n<ul>\n<li>This is because credit cards accounted for only 4% of the bank\u2019s total loans at the end of the year and it would still be able to cross-sell its products.<\/li>\n<\/ul>\n<\/li>\n<li>However, the bank\u2019s CEO stated that while the financial impact (from the RBI action) is expected to be minimal, he was more worried about the \u201c<strong>reputational impact<\/strong>\u201d.<\/li>\n<li><strong>S&amp;P anticipates KMB to potentially take a year<\/strong> to fully address RBI\u2019s key concerns.\n<ul>\n<li>While the bank has made \u201csignificant progress\u201d on technological enhancements, implementing changes and the external audit will take time.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<hr \/>\n<h3>Q.1. How does RBI supervise commercial banks?<\/h3>\n<p>The Banking Regulation Act, 1949 empowers the Reserve Bank of India to inspect and supervise commercial banks. These powers are exercised through on-site inspection and off-site surveillance.<\/p>\n<h3>Q.2. What is Prompt Corrective Action Framework (PCA) by RBI?<\/h3>\n<p>PCA is a system that the RBI imposes on banks showing signs of financial stress. The regulator considers banks as unsafe if they fail to meet the standards on certain financial metrics or parameters.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The RBI barred Kotak Mahindra Bank (KMB) from onboarding new customers on its online and mobile banking channels, and issuing fresh credit cards.<\/p>\n","protected":false},"author":5,"featured_media":40836,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-40835","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/40835","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=40835"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/40835\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/40836"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=40835"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=40835"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=40835"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}