Uday Kotak The billionaire’s net worth fell by more over Rs 10,000 crore on Thursday.
This happened after the Reserve Bank of India prohibited Kotak Mahindra Bank from onboarding new clients via mobile and internet and issuing new credit cards.
The RBI raised’significant concerns’ after inspecting the bank’s IT infrastructure over the last two years.
It also cited the bank’s ‘continuing inability’ to effectively address these vulnerabilities.
On Thursday, Kotak Mahindra Bank’s stock fell by almost 11%.
The shares began at Rs 1842 and finished at Rs 1,643.
Kotak, who has a 25.71 percent stake in Kotak Mahindra Bank, lost around ₹10,225 crore ($1.3 billion) in value.
The shares, which opened at Rs 1842, closed at Rs 1,643.
Kotak, who has a 25.71 per cent in Kotak Mahindra Bank, saw around ₹10,225 crore ($1.3 billion) of his wealth wiped out in a single day.
Bloomberg quoted its Bloomberg Billionaires Index as valuing Kotak at $14.4 billion on 24 April.
Kotak Mahindra Bank’s market capitalization, which was Rs 3,66,383.76 crore on Wednesday, was reduced to Rs 3,26,615.40 crore by Thursday.
The billionaire isn’t the only one who lost out.
As per Mint, mutual funds have a 12.82 per cent stake in Kotak Mahindra Bank.
The fall in shares have cost funds to the tune of over Rs 5,000 crores.
Insurance companies also suffered.
Life Insurance Corporation of India, with a 6.46 per cent share in Kotak Mahindra Bank, lost around ₹2,569 crore due to the fall.
In all, insurance companies’ found themselves around ₹3,456 crore poorer.
Little upside in short term
Analysts say KMB shares are likely to see little upside in the short term as a result of the RBI’s action.
“We believe RBI’s move will weigh on the stock price in the near term,” Morgan Stanley was quoted as saying by Mint.
They also see a negative impact on the bank.
“The ban on online customer acquisition will have an impact on Kotak Mahindra Bank’s growth as it is one of the slowest lenders for physical branch expansions,” said Ashutosh Mishra, banking analyst at Ashika. “The RBI ruling will create a negative sentiment on the bank.”
Kotak, responding to the central bank’s action, said KMB had acted swiftly with regards to “adoption of new technologies to strengthen its IT systems and will continue to work with RBI to swiftly resolve balance issues at the earliest.”
Kotak in September resigned as the managing director and chief executive officer of Kotak Mahindra Bank.
“Uday Kotak has ceased to be the Managing Director & CEO of the Bank, with effect from 1 September, 2023 on account of his resignation considered at the Bank’s Board meeting held today and has become a non-executive Director of the Bank,” KMB said in a filing.
Kotak previously reduced his stake in KMB following an RBI directive in in line with the guidelines for new bank licenses.
‘Found to be significantly non-compliant’
The bank was deemed to have fallen short of the regulatory guidelines spelled out in the IT Risk and Information Security Governance for 2022 and 2023.
“During the subsequent assessments, the bank was found to be significantly non-compliant with the Corrective Action Plans issued by the Reserve Bank for the years 2022 and 2023, as the compliances submitted by the bank were found to be either inadequate, incorrect or not sustained,” it said in a statement.
“In the absence of a robust IT infrastructure and IT Risk Management framework, the bank’s Core Banking System (CBS) and its online and digital banking channels have suffered frequent and significant outages in the last two years, the recent one being a service disruption on 15 April, 2024, resulting in serious customer inconveniences,” the RBI was quoted as saying by Moneycontrol.
“It is also observed that, of late, 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,” it added.
“The Reserve Bank, therefore, has decided to place certain business restrictions on the bank, in the interest of customers and to prevent any possible prolonged outage which may seriously impact not only the bank’s ability to render efficient customer service but also the financial ecosystem of digital banking and payment systems,” it further stated.
It said the restrictions would be re-examined after a comprehensive external audit commissioned by the bank with the prior approval of RBI, and remediation of all deficiencies that may be pointed out in the external audit as well as the observations contained in the RBI Inspections, to the satisfaction of the Reserve Bank.
It added that these restrictions are without prejudice to any other regulatory, supervisory or enforcement action that may be initiated against the bank by the Reserve Bank.
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Source: Firstpost
