RBI bars Kotak Mahindra Bank from onboarding customers online and issuing new credit cards

According to a press statement released by the Reserve Bank of India (RBI), the banking regulator has prohibited Kotak Mahindra Bank Limited from onboarding new customers via digital means and from issuing new credit cards. This is a significant blow for the bank.

The RBI invoked Section 35A of the Banking Regulation Act, 1949, citing concerns stemming from its IT examinations of the bank for 2022 and 2023 and highlighting ongoing inadequacies in addressing these issues.

Under the directive, Kotak Mahindra Bank is instructed to immediately halt new customer acquisitions via online and mobile platforms, as well as refrain from issuing additional credit cards. However, existing customer services, including credit card facilities, will remain unaffected.

The RBI identified substantial deficiencies in various IT management areas, such as inventory, patch management, user access, vendor risk, data security, and disaster recovery, persisting despite corrective actions mandated in previous years. The bank’s IT infrastructure has exhibited recurrent and significant outages over the past two years, with a recent disruption on April 15, 2024, causing considerable inconvenience to customers.

Kotak Mahindra Bank responded by affirming its commitment to rectify the issues promptly and emphasising ongoing efforts to enhance IT systems. Despite continuous engagement between the RBI and the bank, outcomes have been unsatisfactory, compounded by escalating digital transactions, placing additional strain on IT systems.

To safeguard customer interests and preserve the integrity of digital banking, the RBI imposed business restrictions, aiming to prevent potential prolonged disruptions that could impact service efficiency and financial stability.