New Delhi: The Reserve Bank of India (RBI) has barred Kotak Mahindra Bank from onboarding new customer through online mode and issuing fresh credit cards owing to data security concern and inefficient information technology (IT) infrastructure.
However, the bank will continue to serve the existing customers, including those having credit cards, as usual.
In a statement the RBI on Wednesday evening said: “The Reserve Bank of India has today, in exercise of its powers under Section 35A of the Banking Regulation Act, 1949, directed Kotak Mahindra Bank Limited (hereinafter referred to as ‘the bank’) to cease and desist, with immediate effect, from (1) onboarding of new customers through its online and mobile banking channels and (II) issuing fresh credit cards. The bank shall, however, continue to provide services to its existing customers, including its credit card customers.”
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The Central bank took the action owing to “significant concerns arising out of RBI’s scrutiny of IT operation of the bank for two consecutive years, 2022 and 2023. It noted that the bank failed to address these concerns in a comprehensive and timely manner.”
The Kotak Mahindra Bank, on its part claimed that it had taken stems to adopt new technology to strengthen its IT operation and said that all the issues raised by the Central bank would be resolved at the earliest.
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“We have received an order from the RBI which directs us to temporarily pause onboarding of new customers though our online and mobile banking channels and issuance of fresh credit cards. The bank 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,” Kotak Bank said.
Existing customers wont suffer
In the statement, the bank stated: “We want to reassure our existing customers of uninterrupted services, including credit card, mobile and net banking. Our branches continue to welcome and onboard new customers, providing them with all the Bank’s services, apart from issuance of new credit cards.”
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Why Crackdown?
During the RBI’s scrutiny, it was noticed that the bank was not managing its IT inventory and data efficiently. “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, etc. 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.
Kotak Mahindra Bank’s profile
The bank’s journey started in 1985 when Uday Kotak founded the Kotak Capital Managment Finance as an investment and financial services company. Industrialist Anand Mahindra and his father Harish Mahindra invested in the company next year and it was named as Kotak Mahindra Finance. It received banking license from the RBI in 2003 and became the 1st non-banking finance company in the country to convert as a full-fledged bank. Currently (till December 2023), the bank has 4.8 crore customers, 1,869 branches and 3,239 ATMs.
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Kotak Mahindra Bank’s IT infrastructure not adequate
The RBI noted that due to the absence of a robust IT infrastructure, the bank’s digital banking channels have suffered frequent outages, causing inconvenience to its customers. The poor IT infrastructure might affect customer service and broader digital banking and payment systems. “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,” it added.
Business curbs to be reviewed later
The RBI further said that it had imposed certain business restrictions on the bank to protect customer’s interest help them avoid prolonged outage of IT operations. The Central Bank, however, said that the restrictions would be withdrawn after the bank settled all the issued flagged for remediate steps. “The action taken by the bank will be reviewed upon completion of a comprehensive external audit to be commissioned by the bank with the prior approval of RBI,” said an RBI officer.
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Kotak Mahindra Bank share down by 12% in early trade
The impact of RBI’s curb on the bank was visible in the stock market as well. From the Sensex basket, Kotak Mahindra Bank tanked over 12% after the RBI barred the company from onboarding customers online and issuing fresh credit cards.
Kotak Bank promoter donated ₹60 crore to BJP
One of the promoters of the Kotak Mahindra Bank, Infina Finance had donated electoral bonds worth ₹60 crore to the BJP. Infina Finance is owned by the Kotak family and is listed as one of the promoter group entities of Kotak Mahindra Bank. Infina Finance, however, does not own any share in the bank, facing the RBI curbs.
