RBI restricts Kotak Mahindra Bank from issuing new credit cards

25 Apr 2024 , 03:40 PM

With immediate effect, Kotak Mahindra Bank has been asked to stop issuing new credit cards and onboarding new customers through online and mobile banking channels by the Reserve Bank of India (RBI), which discovered "serious deficiencies and non-compliances" in certain areas of the bank's operations on Wednesday.

According to RBI, the private lender is free to go on serving its current clientele, which includes credit cardholders.

In accordance with Section 35A of the Banking Regulation Act, 1949, the Reserve Bank of India has today given Kotak Mahindra Bank Limited (henceforth referred to as "the bank") an order to stop and desist, effective immediately, from (i) onboarding new customers through its online and mobile banking channels and (ii) issuing new credit cards. Nonetheless, the bank will keep offering services to its current clientele, which includes credit card holders," the RBI statement stated.

The RBI took action after discovering "significant" issues with the central bank's IT examination for the years 2022 and 2023. The bank's "continuous failures" to address the issues "comprehensively and in a timely manner" were noticed by the RBI.

IT inventory management, patch and change management, user access management, vendor risk management, data security and data leak prevention plan, business continuity and disaster recovery rigor and drill, etc. were found to have serious flaws and non-compliances. In violation of regulatory norms, the bank was found to have inadequate information security governance and IT risk management for two years in a row, according to RBI.

The RBI ordered Kotak Mahindra Bank to stop issuing new credit cards and enrolling new customers through mobile banking in light of these findings.

Kotak Mahindra Bank is not permitted to accept new clients, however this does not prevent the bank from providing services to its current clientele, which includes credit card holders.

Therefore, the services won't be impacted at all if you are a current Kotak Mahindra customer or credit card user.

"The Reserve Bank 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," the statement read.

Once a thorough external audit—which the bank will commission with RBI approval—has been completed, the limitations placed on Kotak Mahindra Bank will be reevaluated.

"After a thorough external audit, to be commissioned by the bank with RBI's prior approval, is completed and all deficiencies found in the external audit and RBI Inspection observations are addressed to the Reserve Bank's satisfaction, the current restrictions will be reevaluated. Furthermore, the Reserve Bank may take additional regulatory, supervisory, or enforcement action against the bank without prejudice as a result of these limits, the RBI added.

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