India cenbank order on Kotak Mahindra Bank impacts franchise, reputation - CEO

FILE PHOTO: A man walks past the Kotak Mahindra Bank branch in New Delhi

By Siddhi Nayak

MUMBAI (Reuters) -The Reserve Bank of India's (RBI) regulatory order on Kotak Mahindra Bank has impacted the private lender's franchise and reputation even though its financial impact is expected to be minimal, its chief executive officer said.

Last week the RBI asked Kotak to stop adding clients digitally and issuing credit cards due to gaps in its IT infrastructure.

"The Reserve Bank of India order, obviously, has had an impact both on our franchise (and) our reputation, which does not feel good," Ashok Vaswani told a media briefing in Mumbai on Saturday.

"...we are committed to coming back strongly; that's our number one priority."

The bank will double its efforts, resources and money in addressing IT-related issues, Vaswani said, adding that the bank currently spends 10% of total expenditure on IT.

Kotak is already working with the RBI to appoint an external auditor for IT systems and the process should be completed soon, he said.

After the RBI order and the resignation of joint managing director KVS Manian this week, analysts had expressed concerns that Kotak's heavily digital business model meant the ban would hurt its medium-term growth, leading to a 16% drop in its share price over the past six trading sessions.

The regulatory action and Manian's resignation came after billionaire Uday Kotak, who founded and led the bank, resigned as its managing director and chief executive officer last September, citing personal reasons, before the end of his term.


Earlier, Kotak Mahindra Bank reported a 26% increase in fourth-quarter net profit, sharply exceeding analysts' expectations, buoyed by higher core lending income and healthy loan growth. The private lender's standalone net profit, excluding subsidiaries, rose to 41.33 billion rupees ($495.71 million) in the January-March quarter, from 34.96 billion rupees in the same period last year. Kotak's net interest income, the difference between interest earned and paid out, increased 21% on-year to 260 billion rupees. Its net interest margin (NIM), a key gauge of profitability for banks, shrank to 5.28% in the fourth quarter from 5.75% in the same period last year, but was higher than the 5.22% in the October-December quarter.

The gross non-performing assets (NPA) ratio was at 1.39% at the end of March, versus 1.73% at the end of December.

(Reporting by Siddhi NayakEditing by Kim Coghill and Gareth Jones)