RBI bars Kotak Mahindra Bank from onboarding new customers via online, mobile banking channels

The Reserve Bank of India (RBI) has imposed restrictions on Kotak Mahindra Bank, prohibiting the bank from onboarding new customers through its online and mobile banking channels and from issuing new credit cards. 

The decision comes after the RBI identified significant deficiencies in the bank's IT systems and controls, which have not aligned with its rapid growth, leading to serious compliance failures.

RBI's findings and concerns

According to the RBI's press release, the regulatory action is a result of "significant concerns arising out of Reserve Bank’s IT Examination of the bank for 2022 and 2023 and the continued failure on the part of the bank to address these concerns in a comprehensive and timely manner." 

The RBI noted multiple areas of concern, including IT inventory management, patch and change management, user access management, vendor risk management, data security, and data leak prevention strategy, along with inadequate business continuity and disaster recovery protocols.

The press release further detailed, "During the subsequent assessments, the bank was found to be significantly non-compliant with the Corrective Action Plans issued by the Reserve Bank for 2022 and 2023, as the compliances submitted by the bank were found to be either inadequate, incorrect or not sustained."

Impact on Kotak Mahindra Bank's operations

The restrictions will notably affect the bank's ability to expand its customer base digitally, but Kotak Mahindra Bank has reassured that services to existing customers, including credit card, mobile, and net banking, will continue uninterrupted. 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."

Measures for resolution and future compliance

The RBI's action includes a directive for Kotak Mahindra Bank to conduct a comprehensive external audit approved by the RBI, followed by the implementation of remedial actions to address the deficiencies noted. The restrictions will be reviewed upon completion of these measures and satisfactory compliance with the RBI's directives.

The RBI emphasized the necessity of these measures, stating, "The restrictions now being imposed will be reviewed upon completion of a comprehensive external audit to be commissioned by the bank with the prior approval of RBI, and remediation of all deficiencies that may be pointed out in the external audit as well as the observations contained in the RBI Inspections, to the satisfaction of the Reserve Bank."