Kotak Bank sees rising expenses in coming quarters as it revamps IT infra on RBI action

The bank will also be hiring an external auditor to assess the overall technology architecture soon, as mandated by the RBI

As the Reserve Bank of India (RBI) stopped Kotak Mahindra Bank from issuing new credit cards due to technology-related deficiencies, the lender expects operating expenses to rise in the upcoming quarters due to increased investments in ramping up its IT framework.

"Technology spends contribute 10 percent to operating expenditure (opex). So when opex goes up, tech spends is also expected to rise in tandem. Since we need to get the bank's tech risk-resilient after RBI's ban, we will be focusing on capacity build-up instead of launching any new products or new online banking application features," the management said in a post-earnings analyst call.

The management added that it will step-up investments to fortify its IT systems by focusing on sustainable compliance to baseline cyber security framework for banks and strengthening digital payment security controls.

The bank will also be hiring an external auditor to assess the overall technology architecture soon, as mandated by the RBI.

ALSO READ: RBI action on digital lending to drag Kotak's profit by Rs 300-450 crore in FY25, says CEO & MD

Kotak Mahindra Bank estimates Rs 300-450 profit-before-tax (PBT) impact in FY25 following the regulatory action. However, they termed this RBI ban to more of 'reputational' impact rather than a 'financial' one.

Kotak Mahindra Bank's opex rose by 3 percent year-on-year (YoY) to Rs 4,426 crore in Q4FY24 from Rs 4,285 crore in Q4FY23. On the other hand, it jumped over 20 percent YoY to Rs 16,679 crore in FY24, with tech spends contributing 10 percent of total opex.

Late in April, the RBI directed Kotak Mahindra Bank to halt its credit card issuances and onboarding new customers through online banking channels due to 'serious deficiencies' in its IT systems and 'continous failure' to comply with the regulator's corrective plan.

Following this ban, the stock of this private sector lender has tumbled over 16 percent, underperforming 0.3 percent rise in the benchmark Nifty 50 index.

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