Taking a stern stance against recurrent violations of IT regulations, the RBI announced its decision to prohibit Kotak Mahindra Bank from enrolling new customers through its online and mobile banking platforms and from issuing fresh credit cards with immediate effect. This comes after the regulator found "serious deficiencies" in IT risk management at the lender.
The RBI said are warranted on the basis of grave concerns emerging from the Reserve Bank's IT examination of the bank for the years 2022 and 2023 and the continued failure on the part of the bank in taking adequate action to address these concerns in a comprehensive and timely manner.
On the basis of these restrictions, Kotak Mahindra Bank has said that it is committed to improving its IT base by implementing new technologies. The bank said it will cooperate with the RBI for quick resolution of all the outstanding issues.
This action is similar to one that the RBI took in December 2020 when it had placed a ban on HDFC Bank for launching new digital initiatives and issuing new cards due to repeated technological outages, which were later lifted in March 2022.
The RBI listed down several areas of deficiency in Kotak Mahindra Bank's IT management, including IT inventory management, patch and change management, user access management, vendor risk management, data security, and business continuity. The bank has been asked to stop onboarding new customers through digital channels and issuing new credit cards while ensuring service to old customers.
The central bank spelled out that the bank's CBS and digital banking channels have experienced frequent and severe outages, with the last one on April 15, 2024. These outages have shown Kotak's deficiency in operational resilience and failure to scale up IT systems in tandem with its growth.
The RBI kept pointing out that despite constant interaction with the bank over the past two years to rectify these issues, it was not satisfied with the response. The sudden surge in digital transactions has put further pressure on the bank's IT infrastructure, and that led the RBI to impose business restraints to ensure the safety of customers and to prevent further prolonged outages.
Kotak Mahindra Bank ensured its existing customers to continue with unhampered services even as confirming the temporary suspension of onboarding new customers through digital channels and issuing new credit cards. The bank added that it was continuing with its effort to further strengthen the IT systems in its collaboration with the RBI.
The RBI defined that the imposed restrictions would be subject to review on the completion of a comprehensive external audit approved by the RBI as well as on remediation of the identified deficiencies. These measures come without prejudice to any additional regulatory actions initiated by the RBI against the bank.
Kotak Mahindra Bank is expected to declare its audited financial results for the March 2024 quarter and financial year 2023-24 on May 4.
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