The Reserve Bank of India (RBI) has recently banned the Kotak Mahindra Bank (KMB) from taking on new customers from its online or mobile platforms and issuing fresh credit cards.

As per reports, this is due to some IT concerns being detected on its technology platforms, after an examination for two years. The central bank has said that coupled with the bank’s “continued failure” to address concerns has led to the ban.

RBI took this action under Section 35A of the Banking Regulation Act, 1949, after concerns raised in the IT examination for 2022 and 2023.

RBI did clarify though that the ban will not affect the current customers and that Kotak can still provide its usual services to them without any hassle, including credit card services.

What Is The Reason For The Ban?

On 24th April, the RBI barred KMB from onboarding new customers from its online or mobile banking platforms and also restricted it from issuing new credit cards.

The RBI in a statement said, “These actions are 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 part of the bank to address these concerns in a comprehensive and timely manner.”

The central bank explaining the reason for the ban stated “…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.

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.”

Upon further investigation, it was also found that Kotak Mahindra was not complying properly with the corrective action plans given by the RBI for 2022 and 2023 years, and the compliances that were submitted were found to be inadequate, incorrect or not sustained.

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The central bank stated, “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 central bank also claimed that Kotak Mahindra Bank was lacking in building necessary operational resilience since it had not been able to create IT systems and controls proportional to its growth.

The RBI added in context to this that “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.”

The Incident On 15th April

According to reports, the last straw for the RBI was the 15th April incident where several customers of KMB were unable to access the bank’s mobile application for the day. Customers then took to social media to complain about this along with how also the net banking, UPI and debit card transactions were not working as well.

One user wrote on X/Twitter that “@KotakBankLtd @kotak811 @udaykotak @jay_kotakone Facing issues while logging into Kotak mobile banking app. It’s a kind request to check this issue ASAP and resolve it soon. Screenshot is attached for your reference” to this the official customer care handle of KMB said, “We regret to inform you that our technical servers are currently experiencing intermittent slowness. We are working diligently to resolve the issue & restore services as soon as possible. We apologise for any inconvenience this may cause & appreciate your patience & understanding.”

The RBI mentioned this incident in their public statement too and is believed to have brought the bank under the scanner of the central bank authorities who decided to take action.

Reports also stated that this ban could affect the bank’s new customer acquisition since a lot of the new account openings are being done through its online and mobile banking channels along with their co-branded credit card deals facing trouble due to the credit card restrictions.

RBI also explained the reason for putting these restrictions on the bank was 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.”

Image Credits: Google Images

Feature image designed by Saudamini Seth

Sources: The Indian Express, Livemint, Business Insider India

Find the blogger: @chirali_08

This post is tagged under: Kotak Mahindra Bank, Kotak Mahindra Bank rbi, rbi, Reserve Bank of India, credit cards, online banking, Kotak Mahindra Bank Online Banking, Kotak Mahindra Bank Net Banking, Kotak Mahindra Bank Mobile App, Kotak Mahindra Bank Credit Card, Kotak Mahindra Bank Customers, it risk, Kotak Mahindra Bank news, Kotak Mahindra Bank credit card rbi, kotak mahindra bank rbi news, kotak mahindra bank rbi ban, kotak mahindra bank rbi penalty, kotak mahindra bank rbi restrictions

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