The Reserve Bank of India has barred Kotak Mahindra Bank from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards for failing to build IT systems and controls commensurate with its growth leading to serious deficiencies and non-compliances with regulatory requirements.

However, RBI has directed Kotak Mahindra Bank to continue providing services to its existing customers, including its credit card customers.

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

It further added that serious deficiencies and non-compliances were observed in Kotak Mahindra Bank’s 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.

The order also noted that in the absence of a robust IT infrastructure and IT Risk Management framework, the bank’s core banking system and its online and digital banking channels have suffered frequent and significant outages in the last two years with the recent one being 10-hour service disruption seen on April 15, 2024.

Ban implications
The curbs have been imposed under section 35A of the Banking Regulation Act. This section is invoked in lieu of public interest, interest of banking policy or when affairs of a bank are detrimental to depositors or prejudicial to the interest of the bank.

Imposed as a ‘cease and desist’ order, any deviation or non-compliance would attract very high penal action by the regulator.

The curbs may be removed post a comprehensive external audit conducted by the bank with RBI’s approval and the remedial actions pointed out therefrom are complied with to RBI’s satisfaction.

Reacting to the RBI order, Kotak Mahindra Bank said it has taken measures for adoption of new technologies to strengthen its IT systems and will continue to work with RBI to swiftly resolve balance issues at the earliest.