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00:00 Well, we have with us the Bali Pant Joshi, former ED at RBI, who joins us to understand
00:06 what this really means and where the glitches are. Morning, the Bali. Thanks a ton for joining in.
00:12 The Bali, it's not just Kotak, right? The RBI has been cracking down on regulated entities
00:19 over non-compliance. In the last three months itself, it's banned Paytm from accepting fresh
00:24 deposits, IFL Finance from giving you cold loans and JM from undertaking any new business related
00:29 to shares and bonds. It was Bank of Baroda in October 2023, HDFC Bank all the way back in 2020
00:37 and now it's Kotak. What are you making of this? How big is this worry? I'll just explain. You see,
00:45 the RBI as the regulator has your interests at heart. I mean, the customer's interests
00:50 come foremost with the RBI. The trigger for this was that on the 15th of April, for 12 hours,
00:58 just imagine if you were coming from abroad and you just had your card with you, your Kotak card,
01:03 you could not access banking. You could do nothing. And that sort of shakes confidence
01:10 in the banking system in total. So the RBI inspected Kotak for two years consecutively.
01:17 They spoke to Kotak and found serious deficiencies and sustained non-compliance.
01:24 What was at risk? Their information technology, their risk management and their information
01:32 security governance. Now, they also, they were in a rush to grow the retail book. So they kept
01:42 onboarding the customers, but they failed to build IT systems and controls commensurate with the
01:50 growth. So now the issue is that this under section 35A, what is section 35A anyway?
01:57 It actually confers on the Reserve Bank the power to issue directions which have the force of law.
02:05 So now the RBI has to assure itself that the company on which it is imposing these directions
02:12 is in a position to pay its present or future depositors in full as and when their claims
02:19 accrue, that the affairs of the company are not being conducted in a manner prejudicial
02:25 or detrimental to the interests of the depositors. So at heart is the information,
02:32 technology, security, risk management, which Kotak was found deficient in. Who does that put at risk?
02:41 First of all, let's see why did the RBI take this action?
02:46 These, there were concerns which arose out of two inspections, two consecutive years,
02:51 2022, 2023. What were the deficiencies, serious deficiencies, non-compliance? One,
02:58 IT inventory management, batch and change management, three, user access strategy,
03:05 which you just saw happen on the 15th of April. And you also see vendor risk management,
03:12 that you're completely dependent on the vendor and most importantly, data security and data leak.
03:19 Now you definitely want your data, any customer wishes his or her data not only to be confidential,
03:25 but the bank was just not taking heed. Now the important and emerging concerns are
03:34 know your customer concerns, which were also there. The second thing is that there is, you see,
03:42 Kotak by itself can create jeopardize the entire financial system, which is fragile, if there is no
03:49 settlement finality of transaction. I mean, you initiate a transaction,
03:54 I'm waiting for the money to come in, it doesn't come in, there's a gridlock.
04:00 Madam, if I may, if I may, Dr. Pant, if I may. So understandably, completely RBI has to protect the
04:09 consumers, the customers. The question is that the extent of the action, you've stopped, the RBI has
04:16 now stopped onboarding of all new customers digitally. That's about 90% of how customers
04:23 are coming on. All fresh credit card issues have also been stopped. Is it proportional?
04:32 Is there proportionality to the action? Yes, yes, yes, absolutely. Because you see,
04:37 you are not able to manage your existing customers. We keep telling you that, you know,
04:42 there can be a data leak. Your KYC will lead to prevention of money laundering,
04:47 anti money laundering concerns, which will overwhelm the entire Indian banking system.
04:53 You do not have a robust IT infrastructure and a IT risk management framework. Now in this grim
05:01 scenario, if you do not take this seriously and keep on onboarding new customers, you are threatening
05:08 the new customers. The RBI has used very strong language, it has said, you must seize and desist
05:15 with immediate effect, onboarding new customers through online and mobile banking. What does the
05:20 Kotak Bank say? It says our branches will continue to onboard new customers. At least that's what I've
05:26 read in the Indian Express. Now, if this is the blaze or blase attitude, which the bank has,
05:33 then please also note that the RBI at the end of the direction says that you are not able to render
05:40 efficient customers, you are threatening the financial ecosystem of digital banking and
05:45 payment systems. And this is not prejudicial to any regulatory, supervisory or enforcement action.
05:53 That means we can do anything to you if you do not wake up. And, you know, as I keep saying,
05:59 stitch in time saves nine. For two years, you've been engaging, coming for n number of meetings
06:04 with the RBI and all that you that we get our platitudes. Right. It's going to impact their
06:11 business. You're right. And I think they're also making an example of this because you're right.
06:16 It's the it's the interest of a customer, of a citizen. That is so the intent clearly is very
06:24 clean for the regulator. More than that, you know, there's a there is not only a demonstration
06:29 effect, there's what is called a domino effect. Right. One by one, the dominoes keep falling.
06:34 And where is your right? Right. No point point noted. I mean, we need to ensure financial and
06:43 payment ecosystem insulated from risk. And internationally, we want people to trust our
06:49 banking. No, you're right. Absolutely. Absolutely. And Kotak does. It's really a perilous situation.
06:54 No, you're you're absolutely right. It's a yes. They do a system. You're right. Yeah. Yeah. And
07:02 I think everything and then come back and if the RBI is satisfied, we hope things will move in the
07:08 right direction. And I think that's what Kotak has indicated. They're going to do whatever it takes.
07:12 With that, Dr. Pan, thank you. Thanks a ton for joining us today on the show.
07:17 [Music]