The Reserve Bank of India (RBI) on Wednesday, took a significant step by directing Kotak Mahindra Bank Limited to halt certain operations under Section 35A of the Banking Regulation Act, 1949. The move comes as a response to persistent concerns raised by RBI regarding the bank’s IT infrastructure and risk management practices.
RBI has directed Kotak Mahindra Bank to cease and desist, with immediate effect, from onboarding of new customers through its online and mobile banking channels and issuing fresh credit cards. The bank will, however, continue to provide services to its existing customers, including its credit card customers.
“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. 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.,” RBI stated in a release.
Despite repeated engagements and directives from RBI to address these concerns, the bank’s remedial efforts were deemed inadequate and inconsistent. The lack of a robust IT infrastructure has led to frequent and significant outages in Kotak Mahindra Bank’s Core Banking System (CBS) and digital banking channels, resulting in considerable inconvenience to customers.
Furthermore, the bank’s rapid expansion in digital transactions, including credit card operations, has exacerbated the strain on its IT systems. In light of these challenges and to safeguard customer interests, RBI has imposed business restrictions on Kotak Mahindra Bank, as per the release.
These restrictions will remain in place until the bank completes a comprehensive external audit, approved by RBI, and addresses all deficiencies highlighted in both the external audit and RBI inspections.