RBI Bars Kotak Mahindra Bank From Onboarding New Customers, Issuing Fresh Credit Cards

The RBI decision on Kotak Mahindra Bank was made due to supervisory concerns regarding the bank's technology systems, as revealed during a central bank examination over the past two years

The RBI said that Kotak Bank had been found deficient in IT risk and information security governance for two consecutive years, falling short of regulatory requirements.

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The Reserve Bank of India (RBI) on Wednesday, in exercise of its powers under Section 35A of the Banking Regulation Act, has imposed restrictions on Kotak Mahindra Bank (KMB), prohibiting the bank from onboarding new customers through its online and mobile banking platforms and issuing new credit cards. The decision was made due to supervisory concerns regarding the bank's technology systems, as revealed during an RBI examination over the past two years.

Why the RBI imposed curbs?

“These actions are necessitated based on significant concerns arising out of Reserve Bank’s IT Examination of the bank for the years 2022 and 2023 and the continued failure on part of the bank to address these concerns in a comprehensive and timely manner,” RBI said.

The RBI cited serious deficiencies in the bank's IT infrastructure, including IT inventory management, patch and change management, user access management, vendor risk management, data security, and business continuity and disaster recovery protocols. The central bank also noted that KMB had been found deficient in IT risk and information security governance for two consecutive years, falling short of regulatory requirements.

“For two consecutive years, the bank was assessed to be deficient in its IT Risk and Information Security Governance, contrary to requirements under Regulatory guidelines,” RBI said.

Who will not be affected?

Existing customers will not be affected by the ban, and KMB will continue to offer services to its current customers, including those with existing credit cards. However, the restriction is expected to impact KMB's new customer acquisition strategy significantly, as many new account openings occur through online and mobile banking channels. The bank's credit card business may also face challenges as the RBI's actions could affect KMB's co-branded credit card agreements.

The RBI's decision was prompted by KMB's failure to comply with corrective action plans for 2022 and 2023, as its responses were deemed inadequate, incorrect, or unsustainable. Frequent outages and service disruptions, most recently on April 15, 2024, have caused significant inconvenience to customers.

The central bank pointed out the need for KMB to build a robust IT infrastructure and IT risk management framework to address the deficiencies and strengthen operational resilience commensurate with the bank's growth.