RBI Prohibits Kotak Mahindra Bank from Enrolling New Customers Online and Issuing Credit Cards

Summary,

1. RBI Restrictions: RBI has barred Kotak Mahindra Bank from online customer onboarding and new credit card issuance due to IT concerns.

2. Existing Customer Service: Existing customers will continue to receive services, except for new credit card issuance.

3. IT Challenges: RBI identified IT and security deficiencies, leading to frequent service outages and operational issues.

4. Bank’s Response: Kotak Mahindra is adopting new technologies to improve IT infrastructure and is working closely with RBI to address concerns and ensure uninterrupted services.

RBI Restricts Kotak Mahindra’s Online Customer Onboarding and Credit Card Services

The Reserve Bank of India (RBI) has prohibited Kotak Mahindra Bank from enrolling new customers through its online and mobile banking platforms and from issuing new credit cards on April 24. This decision comes after significant concerns were raised during the RBI’s IT examinations of the bank in 2022 and 2023.

Continued Service for Existing Customers

Despite these restrictions, the Kotak Mahindra Bank is still permitted to serve its existing customers, including those with credit cards.

The RBI emphasized that the actions were taken in the best interest of the customers and to prevent potential prolonged outages that could disrupt not only the bank’s service but also the broader digital banking and payment ecosystem.

IT Risk and Information Security Concerns

The RBI highlighted that Kotak Mahindra Bank had been found deficient in its IT Risk and Information Security Governance for two consecutive years, failing to meet regulatory guidelines.

The bank’s inadequate IT infrastructure and risk management framework have resulted in frequent and significant service outages, with the most recent disruption occurring on April 15, 2024.

Kotak Mahindra Bank’s failure to build robust IT systems

The banking sector regulator RBI stated that the bank’s failure to build robust IT systems and controls in line with its growth has led to material deficiencies in operational resilience.

• Despite ongoing high-level engagement between the RBI and the bank to address these concerns, the outcomes have been unsatisfactory.

Rising Digital Transaction Volumes Put Pressure on IT Systems

The RBI also noted a rapid increase in the volume of the bank’s digital transactions, including credit card transactions, which is further straining its IT systems.

• The continuous growth in digital transactions has exacerbated the bank’s existing IT challenges, contributing to service disruptions and customer inconvenience.

RBI’s Continuous Engagement with Kotak Mahindra Bank

Over the past two years, the RBI has maintained continuous high-level communication with Kotak Mahindra Bank regarding these IT and operational concerns.

• The regulator noted a recent surge in the volume of the bank’s digital transactions, including credit card transactions, which has placed additional strain on its already fragile IT systems.

Business Restrictions Imposed by RBI

In light of these issues and to safeguard customer interests, the RBI has imposed certain business restrictions on Kotak Mahindra Bank.

• The aim is to prevent potential prolonged outages that could compromise the bank’s ability to deliver efficient customer service and disrupt the broader digital banking and payment ecosystem.

Kotak Mahindra Bank’s Response to RBI Restrictions

Kotak Mahindra Bank has issued a statement addressing the RBI’s restrictions. The bank clarified that its branches will continue to welcome new customers and offer all existing services, with the exception of issuing new credit cards.

The statement further mentioned,

“The bank is actively adopting new technologies to enhance its IT infrastructure. We remain committed to collaborating closely with the RBI to promptly address any remaining issues.

We assure our existing customers that they will continue to receive uninterrupted services, including mobile and net banking.