RBI bars Kotak Mahindra Bank from issuing fresh credit cards, onboarding new customers

RBI action on Kotak Bank: The Reserve Bank of India (RBI) has taken supervisory action against private lender Kotak Mahindra Bank, prohibiting it from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards. This directive, issued under Section 35A of the Banking Regulation Act, 1949, comes into immediate effect, with existing customers, including credit card holders, unaffected by the restrictions.

The RBI's decision stems from the concerns raised during the bank's IT examination for the years 2022 and 2023. The examination revealed serious deficiencies and non-compliances in various areas, including IT inventory management, patch and change management, user access management, vendor risk management, data security, and business continuity.

Despite successive assessments and corrective action plans issued by the RBI, Kotak Mahindra Bank failed to adequately address these concerns, the central bank said in a statement. The bank's IT infrastructure and risk management framework were found lacking, leading to frequent and significant outages in its Core Banking System (CBS) and digital banking channels, causing inconvenience to customers.

The recent service disruption on April 15, 2024, further highlighted the bank's operational resilience shortcomings. Despite the RBI's continuous engagement over the past two years to strengthen its IT resilience, Kotak Mahindra Bank's outcomes were deemed unsatisfactory.

These restrictions will remain in place until a comprehensive external audit, approved by the RBI, identifies and remedies all deficiencies highlighted in the RBI inspections.