Synopsis: Kotak Mahindra Bank has significantly increased its technology spending beyond the usual 10-12% of total expenses due to a credit card embargo imposed by the Reserve Bank of India (RBI) in April 2024. The embargo, which highlighted technological deficiencies, has caused an annual impact of Rs 450 crore, pushing the bank to prepone technology investments and address regulatory concerns.
Kotak Mahindra Bank, the fourth-largest private lender in India, has reported a significant increase in its technology spending during the Q3 FY25 earnings call.
The rise, beyond its usual allocation of 10-12% of total expenses, comes in response to the Reserve Bank of India’s (RBI) embargo on its credit card business, which was imposed in April 2024 due to technological deficiencies.
The restrictions have resulted in an annual financial impact of Rs 450 crore on the bank.
Addressing the situation, Devang Gheewalla, the Chief Financial Officer (CFO) of Kotak Mahindra Bank, stated, “Before the embargo, we had a 30-month plan for upgrading our technology. The embargo forced us to reprioritise and prepone some investments.”
Ashok Vaswani, Managing Director and CEO of Kotak Mahindra Bank, emphasized the measures taken to address RBI’s directives. “At the core of this effort is building a much higher level of resiliency in our technology platform. We’re improving cybersecurity, IT risk management, capacity planning, and customer experience,” he said.
To strengthen its digital offerings, the bank has launched updated mobile banking apps, including the 811 app and Cherry, an investment app.
Despite these advancements, Vaswani acknowledged that progress with the regulator continues without a definitive timeline for lifting the embargo.
The RBI’s restrictions have forced Kotak Mahindra Bank to reassess its operational strategy.
“When the embargo hit, we made several assumptions on portfolio behavior, acquisition costs, and marketing. Some of these assumptions worked better than expected, while others didn’t.
However, the total annual impact remains in line with our estimate of Rs 450 crore,” Vaswani noted.
The embargo has also impacted the bank’s growth in unsecured retail lending.
Vaswani revealed that the credit card book has plateaued, and the microfinance portfolio is stabilising. Consequently, the bank has pivoted towards secured lending, including SME loans, mortgages, and working capital loans.
Deputy Managing Director Shanti Ekambaram highlighted this shift, stating, “We have not grown our unsecured book for nine months due to the embargo, but our growth in secured assets, including SME and corporate loans, has been robust and stable.”
Kotak Mahindra Bank’s acquisition of Standard Chartered Bank’s personal loan portfolio, valued at Rs 3,000 crore, is on track for completion.
This move is expected to bolster the bank’s secured asset growth as it continues to navigate regulatory challenges.
CEO Vaswani expressed optimism about the lessons learned during this period.
“We’ve implemented significant changes in our microfinance business and are now better positioned to manage risks. Once we emerge from the embargo, we’ll accelerate growth in our credit card and unsecured lending segments,” he said.
Amid these challenges, the bank experienced a leadership change as Milind Nagnur, Chief Technology Officer and Chief Operating Officer (CTO & COO), stepped down in January 2025, citing personal reasons.
This development comes at a critical time as the bank intensifies its efforts to resolve the technological deficiencies flagged by the RBI.
Kotak Mahindra Bank’s response to the RBI’s credit card embargo underscores its commitment to technological resilience and operational realignment.
While the restrictions have temporarily hindered growth in unsecured retail lending, the bank’s focus on secured lending and strategic acquisitions positions it for long-term stability.
Although progress with the regulator is ongoing, the lessons learned during this period are expected to enhance the bank’s overall operations and risk management capabilities.
Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Readers are advised to consult a professional before making any financial decisions.
