RBI action to have limited fin impact; more worried about reputational damage: Kotak Mahindra Bank

Mumbai: Kotak Mahindra Bank is expecting business restrictions imposed by the Reserve Bank to have a 'relatively small' financial impact but is more concerned about the reputational damage, a top official said on Saturday.

Hinting that it expects the restrictions to last for a 'couple of months', its managing director and chief executive Ashok Vaswani told reporters that it will have a limited impact on liability growth.

Late last month, the RBI barred Kotak Mahindra Bank from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards with immediate effect as the lender was found deficient in its IT risk management.

Vaswani, who took over office only in January this year, said it is redoubling its efforts on the tech front, and winning back trust is the 'top priority' for the lender now.

He admitted that the order will have an impact on the credit card business and its digital banking-focused 811 businesses as they are unable to do their work.

"I am more worried about the reputational impact than the financial impact. The financial impact will be relatively small," Vaswani told reporters.

Its deputy managing director Shanti Ekambaram said the bank will focus on doing more business with its existing customers and deepening relationships through more cross-selling.

She also added that the order does not prohibit the bank from adding new customers at the branches or in digitally-assisted journeys.

Its group chief financial officer Devang Gheewalla said the bank spent 10 per cent of its operating expenses on the tech front in FY24, and added that the order may lead to an acceleration of the spending.

Vaswani, who comes with a background in technology, said the spending was around Rs 1,700 crore in FY24 against about Rs 1,300 crore in the year-ago period, and added that they will increase it at a similar rate.

Over the past two years, the overall spending on the tech front has gone up, Vaswani said, adding that the efforts, which include new senior-level hires in tech functions, and augmenting the overall team, have 'clearly fallen short'.

The demand for the services has also gone up simultaneously, he said, adding that the bank has climbed up over five places to be the fifth busiest on the surging UPI transactions front.

He, however, made it clear that it is not only a capacity issue but also about risk and resilience and assured that the bank will be looking at all three elements.

The bank will also be hiring an external auditor to assess the overall technology architecture soon, as mandated by the RBI, he said.

There will also be a reprioritisation of the expenses to be undertaken and also advancing of the targets on attaining certain benchmarks being pursued, he said.

When asked to quantify the cost of such a strong action, he declined to quantify saying it is a complex situation.

The bank will try to make from the existing customers, which will entail a market share gain, but will lose out because it is deprived of growing the business, Vaswani said, adding that he expects to 'come out ok' on a net basis.

The tech aspect will take a lot of time and mindshare of the top management going forward, and the bank wants to come out of the embargo in a 'roaring' way, he said.

Jay Kotak, the son of the bank's promoter and Vaswani's predecessor Uday Kotak, continues to be the co-head of the 811 offering, Ekambaram said.