Kotak Bank to Stop Accepting New Customers Through Online and Mobile Banking on April 24; RBI Issues Prohibition

The RBI, the top bank in India, has prohibited Uday Kotak from accepting new clients via its online and mobile banking platforms, dealing a severe blow to the private sector lender formed by Kotak Mashindra Bank. This is effective immediately as of April 24, 2024. Nonetheless, the RBI has permitted Kotak Bank to go on offering its current clientele, which includes credit card holders, its services.

 

The RBI has long prohibited new clients from being onboarded via different financial services channels; it takes this action each time it notices non-compliance. The situation is the same with Kotak Bank, however the list is more lengthy! www.goodreturns.in/{image-kotakbank600-1713967226.jpg

The term for this Kotak Bank prohibition is Supervisory Action.

The Reserve Bank of India (RBI) said in a statement that these steps were necessary due to serious concerns raised by the bank’s IT examination for the years 2022 and 2023 and the bank’s ongoing inability to adequately and promptly resolve these issues. IT inventory management, patch and change management, user access management, vendor risk management, data security and leak prevention strategy, business continuity and disaster recovery rigor and drill, etc., all showed serious flaws and non-compliances.”

The RBI has highlighted a number of events, including:

– The bank was found to have inadequate information security and IT risk governance for two years in a row, which is against regulatory norms. In the course of the ensuing examinations, the bank’s compliances with the Corrective Action Plans issued by the Reserve Bank for the years 2022 and 2023 were determined to be either insufficient, erroneous, or not maintained, resulting in a serious non-compliant situation.

– The bank’s Core Banking System (CBS) and its online and digital banking channels have experienced frequent and significant outages in the last two years due to a lack of a strong IT infrastructure and IT Risk Management framework. The most recent outage was a service disruption on April 15, 2024, which caused significant inconveniences for customers. Due to the bank’s inability to develop IT systems and controls that matched its expansion, it is determined that it is materially lacking in the development of the required operational resilience.

– The RBI also noted that the amount of digital transactions made by the bank, notably those using credit cards, has increased quickly, placing further strain on the IT infrastructure.

Based on these results, the RBI has been in constant high-level contact with the bank to enhance its IT resilience during the last two years. But according to RBI, “The outcomes have been far from satisfactory.”

In light of this, the RBI has chosen to impose the aforementioned business restrictions on the bank in order to protect the interests of its clients and avert the possibility of a protracted outage that could negatively affect not only the bank’s capacity to provide effective customer service but also the financial ecosystem that includes digital banking and payment systems.

According to RBI, the restrictions in place will be reviewed after a thorough external audit—which the bank will commission with RBI’s prior approval—has been completed and all deficiencies—both those found in the external audit and those found in RBI Inspections—have been addressed to the Reserve Bank’s satisfaction.

It also said that these limitations do not preclude the Reserve Bank from taking further regulatory, supervisory, or enforcement actions against the bank.

Thursday’s attention will be on Kotak Bank’s share price after the RBI’s most recent suspension.