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

New Delhi [India]: The Reserve Bank of India (RBI) has directed Kotak Mahindra Bank to cease onboarding new customers through its online and mobile banking channels, and issuing fresh credit cards.

This direction will come into effect immediately.

The bank shall, however, continue to provide services to its existing customers, including its credit card customers.

RBI, in a statement, noted that these actions against the bank were 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 the part of the bank to address these concerns in a comprehensive and timely manner.

RBI said serious deficiencies and non-compliances were observed in the areas of IT inventory management, patch and change management, user access management, vendor risk management, data security, and data leak prevention strategy, business continuity, and disaster recovery rigour and drill.

"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," the RBI said.

During the subsequent assessments, the bank was found to be significantly non-compliant with the Corrective Action Plans issued by the Reserve Bank for the years 2022 and 2023, as the compliances submitted by the bank were found to be either inadequate, incorrect, or not sustained.

In the absence of a robust IT infrastructure and IT Risk Management framework, the bank's Core Banking System (CBS) and its online and digital banking channels have suffered frequent and significant outages in the last two years, the recent one being a service disruption on April 15, 2024, resulting in serious customer inconveniences.

The bank is also found to be materially deficient in building necessary operational resilience on account of its failure to build IT systems and controls.

In the past two years, the Reserve Bank has been in continuous high-level engagement with the bank on all these concerns with a view to strengthening its IT resilience, but the outcomes have been "far from satisfactory".

It is also observed that, of late, there has been rapid growth in the volume of the bank's digital transactions, including transactions pertaining to credit cards, which is building further load on the IT systems, RBI noted.

"The Reserve Bank, therefore, has decided to place certain business restrictions on the bank as mentioned above, in the interest of customers and to prevent any possible prolonged outage which may seriously impact not only the bank's ability to render efficient customer service but also the financial ecosystem of digital banking and payment systems," RBI's statement read.