Kotak Mahindra Bank has been struggling with outages for a while now (File)
Kotak Mahindra Bank must immediately stop onboarding new customers through its online and mobile banking channels and issuing new credit cards, the Reserve Bank of India said as it flagged "serious deficiencies and non-compliances".
But will this crackdown affect existing customers? No.
According to the RBI, "The bank shall continue to provide services to its existing customers, including its credit card customers."
Existing customers of the Kotak Mahindra Bank can continue to use their credit cards and continue all other transactions online and offline without any hindrance.
However, the regulatory move will significantly impact the bank's customer acquisition targets as most of the onboardings happen online and through mobile banking channels. This may in turn affect its growth in the short run.
The immediate cease and desist order on the issuance of fresh credit cards may also severely hurt the bank's several co-brand deals on credit cards.
What Prompted The RBI Crackdown?
The central bank's actions were necessitated by significant concerns arising out of its IT examination of the Kotak Mahindra Bank in 2022 and 2023 and the private bank's continued failure to address them in a comprehensive and timely manner, the official statement said.
"Serious deficiencies and non-compliance 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.," it said.
Kotak Mahindra Bank was found to be "significantly non-compliant with the Corrective Action Plans issued by the Reserve Bank for the years 2022 and 2023" in the subsequent audits, the RBI said, adding, "The compliances submitted by the bank were found to be either inadequate, incorrect or not sustained."
"The bank is found to be materially deficient in building necessary operational resilience on account of its failure to build IT systems and controls commensurate with its growth," the statement further read.
Service Disruptions And Outages
Kotak Mahindra Bank's Core Banking System (CBS) and its online and digital banking channels suffered several outages in the last two years - the most recent being a service disruption on April 15, resulting in serious customer inconveniences, the RBI said, listing how the absence of a robust IT infrastructure and IT Risk Management framework affected customers. On April 15, Kotak Bank customers could not reportedly access banking services for almost 12 hours.
The RBI said it observed a rapid growth in the volume of Kotak Mahindra Bank's digital transactions, including through credit cards, which is further burdening the IT systems.
"The Reserve Bank, therefore, has decided to place certain business restrictions on the bank 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."
When Will The Curbs Be Lifted?
The restrictions will be reviewed after Kotak Mahindra Banks conducts an external audit with the RBI's prior approval and plugs all deficiencies that are flagged in the audit "to the satisfaction of the Reserve Bank".