The Reserve Bank of India (RBI) on Wednesday announced the removal of the supervisory restrictions imposed on Kotak Mahindra Bank, allowing the lender to resume its business operations that were previously curtailed.

On April 24, 2024, India’s banking regulator enforced restrictions on KMB under Section 35A of the Banking Regulation Act, 1949, asking it to halt the onboarding of new customers via the bank’s online and mobile banking channels and discontinuing the issuance of fresh credit cards.

The measures were introduced after concerns were raised over certain aspects of the bank’s operations, particularly IT infrastructure.

However, Kotak Mahindra Bank took prompt action to address the RBI’s concerns, implementing remedial measures and submitting necessary compliances to the RBI. It also commissioned an external audit, with prior approval from the central bank, to verify its compliance.

After reviewing the bank’s submissions and corrective actions, the RBI has now decided to lift the imposed restrictions.

“It’s the first I’m hearing of it; it’s definitely good news. However, I cannot comment on anything related to the bank at this point. It’s obviously big news, so I need some time to process it. That said, I believe the bank has done a lot over the last 10 months in terms of technology,” Jay Kotak, co-head of Kotak811, the digital banking arm of Kotak Mahindra Bank, told CNBC-TV18.

Welcoming the development, a Kotak Bank spokesperson said, “We welcome the Reserve Bank of India’s (RBI) decision to lift the business restrictions on Kotak Mahindra Bank. This decision follows the Bank’s successful implementation of remedial measures and compliance validation through an external audit. We will continue to work closely with the RBI to shortly resume digital onboarding of new customers and issuing fresh credit cards.”

In an earlier CNBC-TV18 report, Kotak Mahindra Bank’s Managing Director and CEO Ashok Vaswani revealed that the lender was closely collaborating with the regulator, with frequent updates on their progress.

“We’ve been in continuous touch with the RBI, sometimes even every week, getting their guidance and ensuring we’re on the right path,” Vaswani told CNBC-TV18.

He explained that the bank has taken the opportunity presented by the RBI’s restrictions to leap ahead in technology: “Like in every crisis, there’s an opportunity. We’ve taken this as a chance to leapfrog and make our systems resilient and relevant for the future.”

He shared that the bank is now spending approximately 11% of its operational expenditure on technology, up from 10%, and expects an annual cost of ₹450 crore to implement the changes required by the RBI.

Shares of Kotak Mahindra Bank settled 1.4% higher at ₹1,945.50 on the NSE. The one-year return on the scrip is nearly 14%, with the private lender also being the top performer on the Bank Nifty.