Kotak Bank’s Vaswani concerned about reputational impact of RBI order

Kotak Mahindra Bank's new managing director and chief executive officer, Ashok Vaswani, has expressed greater concern over the reputational fallout of the Reserve Bank of India's (RBI) restrictions on the bank than their financial impact.

During his first earnings press conference on Saturday, Vaswani stressed that regaining the trust of customers and regulators would be the bank's utmost priority. To achieve this, the focus would be on upgrading technology systems and accelerating investments.

"The Reserve Bank of India order has had an impact on both franchise and reputation. Coming back, is our number one priority. Our credit card and Kotak811 businesses will be affected," said Vaswani. 

"I'm worried more about the reputation impact than financial impact. Financial impact in the scheme of things will be relatively small," he added.

Vaswani, who assumed the role of CEO four months ago, succeeding the bank's founder Uday Kotak, has been contending with various challenges, including the RBI ban, management restructuring, and the abrupt departure of joint managing director KVS Manian.

Last week, the RBI barred Kotak Mahindra Bank from onboarding new customers through its website or mobile app and restricted the issuance of new credit cards. This action followed "serious deficiencies" in the bank's IT system and its "continuous failure" to comply with the RBI's corrective plan. 

Within a week of the regulatory action, the bank's joint MD, Manian, resigned to pursue opportunities elsewhere in the financial sector.

Also Read: Behind KVS Manian's sudden exit from Kotak Mahindra Bank

While refraining from providing a timeline for corrective measures, Vaswani highlighted the bank's ongoing efforts to upgrade its technology systems over the past two years. These efforts included increased investment in tech capacity, bolstering the tech team with senior hires, and allocating nearly 10% of operational expenses to IT spending. 

Despite these efforts, Vaswani acknowledged the bank's failure to meet regulatory expectations.

"My commitment is that we will further accelerate our efforts and investments, said Vaswani, “We want to utilise this period to focus on existing customers and enrich and deepen the relationship with customers.”

Looking ahead, Vaswani outlined a 4 C framework to enhance the bank's business, emphasizing customer focus, colleague engagement, improving the scale of the company, and fostering a better relationship with the regulatory community.

The RBI's ban on digital business is expected to impact Kotak Mahindra Bank's digital platform, Kotak811, which is co-headed by Jay Kotak, son of the bank's founder, Uday Kotak.

"Kotak811 has a lot of work to do, in terms of deep selling, looing at existing customer journey and working on new app. Jay Kotak will continue to be part of 811," said Shanti Ekambaram, deputy managing director, who oversees the retail portfolio.

Kotak Mahindra Bank reported an 18% year-on-year increase in net profit for the fourth quarter of the fiscal year (Q4FY24), aided by lower provisions.

For the March quarter, net profit stood at ₹4,133 crore, compared to ₹3,495 crore during the same period the previous year. Net interest income (NII), or core income, rose by 13% to ₹6,909 crore, while the Net interest margin (NIM) remained steady at 5.28%.

Asset quality improved sequentially, with gross non-performing assets at 1.39% of total advances, down from 1.73% in the previous quarter. However, the bank witnessed slippages worth ₹1,305 crore and wrote off ₹1,455 crore of unsecured retail loans during the quarter.

Provisions fell to ₹264 crore at the end of the March quarter from ₹579 crore a year ago, though they were higher than the previous quarter's ₹147 crore.

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