Kotak Mahindra Bank's actions by the RBI would hurt the retail industry

Kotak Mahindra Bank's actions by the RBI would hurt the retail industry

Because of regulatory concerns about Kotak Mahindra Bank's technological systems, the RBI prohibited the bank from onboarding customers via digital channels.

Experts predicted that the Reserve Bank of India's move to stop Kotak Mahindra Bank from issuing new credit cards and onboarding new customers online would have a detrimental effect on the bank's retail operations and customer base.

Because of regulatory concerns about Kotak Mahindra Bank's IT systems, the RBI prohibited the bank from onboarding new customers. Over the last two years, Kotak Mahindra Bank has allegedly consistently neglected to address issues about the bank's IT infrastructure, according to the central bank.

Greenedge Wealth Securities co-founder Digant Haria told CNBCTV-18 that it would take some time for the company and the shares of Kotak Mahindra Bank to recover. One of Kotak's expected fastest-growing segments was the retail industry. That's now less certain," he said.

The move, according to Bering Capital Fund India Principal Officer Prakash Diwan, will impede Kotak Mahindra Bank's self-imposed growth targets. He went on to say that the problem is not as bad as a problem with the risk framework or KYC. He went on to say that the bank's current priority must be digitizing its infrastructure.

Digant Haria emphasized that the RBI was unable to conduct comprehensive inspections at the time because to the banks' hurried implementation of digital technology during the epidemic, which is why the central bank took these measures. Many of those flaws are now becoming apparent since we completed things quickly. It now requires time to remedy an issue that was brought about by a rushed approach," he said.

The move would have a detrimental effect on client onboarding via the 811 app, according to Ashutosh Mishra, Lead BFSI Analyst & Head of Research - Institutional Equity at Ashika Stock Broking, as it is one of the main drivers of new customer acquisition.

The worst-case scenario in the near future, according to a banking fund manager who wished to remain anonymous, is a 3 to 5 percent price adjustment in the stock price. He continued by saying that the stock has been moving sideways for a while. He estimated that resolving such problems would take six to nine months. If there are restrictions on the online method, banks will figure out a way to enroll consumers, therefore it will be hard to determine the effect on profits, he said.

Similar action was taken by the RBI against HDFC Bank in 2020, when the lender was asked to halt all new digital launches until the problem was resolved. When HDFC Bank was given permission to issue new credit cards in August 2021, the restriction was partly lifted. In March 2022, new digital launches were once again launched.

According to experts, the RBI will take further steps to fortify the financial system's structure. According to Nirav Karkera, Head of Research at Fisdom, "adherence to the highest security standards becomes imperative to sustain sustained and healthy growth as the Indian banking system observes a robust uptick in adoption of digital banking services."

According to Jyoti Prakash Gadia, Managing Director of Resurgent India, "the restrictions on Kotak Mahindra Bank with respect to fresh onboarding of new customers through online mobile banking and credit cards are indicative of the significant importance which RBI has established on the need to have reliable and sustainable Information Technology systems in the context of the present explosion of digital banking."

On April 24, Kotak Mahindra Bank shares finished 1.65% higher at 1,842.95 on the NSE. The stock has lost 3.45 percent of its value this year.