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India’s central financial institution has banned Kotak Mahindra Bank from issuing bank cards or taking up new digital and cell banking clients, marking the regulator’s newest crackdown on the nation’s fast-growing shopper finance business.
The Reserve Bank of India mentioned it discovered “serious deficiencies” in IT danger and safety governance over two consecutive years at Kotak Mahindra, a distinguished personal sector lender that was based by Uday Kotak, certainly one of India’s most influential monetary figures.
The transfer to impose a ban — which may be reviewed if Kotak Mahindra remediates the issues — on essential enterprise traces is extra proof of a step-up in enforcement for the RBI, which has beforehand tended to mete out fines. Restrictions on new enterprise may in the end have a far heavier impression.
The RBI mentioned on Wednesday that it had determined to impose the restrictions regardless of “continuous high-level engagement with the bank on all these concerns”.
“The outcomes have been far from satisfactory,” the RBI mentioned in a press release. “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.”
A Kotak Mahindra spokesperson mentioned the financial institution has taken measures to strengthen its programs and can proceed to work with the RBI to “swiftly resolve” the problems, including that present clients will proceed to obtain uninterrupted bank card, web and cell banking companies.
The RBI has taken more and more hawkish motion on India’s booming retail lending and has moved aggressively to avert rising shopper debt and delinquencies. Growth in unsecured lending in India now types practically 10 per cent of complete banking sector loans, in response to S&P Global Ratings, which labelled the quantity “excessive” in a March report.
Governor Shaktikanta Das warned banks to keep away from “all forms of exuberance” after the RBI ordered lenders in November to extend the quantity of capital they should have to mitigate towards riskiness in private loans they’ve prolonged.
The RBI’s motion towards Kotak Mahindra follows an order towards Paytm in January, through which the main funds platform was barred by the central financial institution from accepting new deposits, triggering a meltdown in its dad or mum firm’s share worth and an organisational overhaul.
HDFC Bank, India’s largest personal lender, was additionally hit with an RBI suspension on including new bank card clients after common tech outages in 2020. The ban was lifted about eight months later.
“These actions are a departure from the historically nominal financial penalties imposed for breaches,” in response to S&P.
In 2017, Kotak Mahindra launched its digital banking service referred to as 881, which now accounts for about 95 per cent of its private loans by quantity. But earlier this month the financial institution confronted outages that noticed clients wrestle to make digital transactions and money withdrawals.
Uday Kotak beforehand fought with the RBI in a decade-long conflict over the dimensions of his household’s stake within the lender, which was in the end retained at 26 per cent.
In an interview final yr with the Financial Times, Kotak, who stepped down because the financial institution’s chief government in 2023 to adjust to a 15-year regulatory time period restrict, praised India’s regulators “for protecting and nurturing” the nation’s lenders.