RBI Bars Kotak Mahindra Bank from Onboarding New Customers and Issuing Credit Cards

In a recent move, the Reserve Bank of India (RBI) has directed Kotak Mahindra Bank to halt the onboarding of new customers through online and mobile banking channels, as well as to stop issuing fresh credit cards. This article will delve into the details of the RBI's decision, the reasons behind it, and how Kotak Mahindra Bank has responded to the regulatory action.

In addition to barring the onboarding of new customers via online channels, the RBI has also forbidden Kotak Mahindra Bank from issuing new credit cards

What did RBI instruct Kotak Mahindra Bank to do?

The RBI instructed Kotak Mahindra Bank, under Section 35A of the Banking Regulation Act, 1949, to "cease and desist" from onboarding new customers through online and mobile channels, as well as from issuing fresh credit cards. This action was taken due to significant concerns raised during the RBI's IT examination of the bank for the years 2022 and 2023, which the bank failed to address adequately.

Were there any concerns related to customer service?

The RBI highlighted concerns regarding the bank's IT infrastructure and risk management framework, leading to frequent and significant outages in its Core Banking System and digital banking channels. These outages have caused serious inconvenience to customers, with the bank failing to build necessary operational resilience in line with its growth.

Did RBI engage with the bank before taking action?

The RBI has been in continuous high-level engagement with Kotak Mahindra Bank over the past two years regarding these concerns. Despite these interactions, the bank was found to be significantly non-compliant with corrective action plans issued by the RBI and failed to address the regulatory concerns adequately. This led to the imposition of business restrictions to safeguard customer interests and the stability of the financial ecosystem.

What happens to Kotak Mahindra Bank's existing customers?

While the bank is prohibited from onboarding new customers through online channels and issuing fresh credit cards, it will continue to serve its existing customers, including credit card holders. Kotak Mahindra Bank has reassured its existing customers of uninterrupted services, emphasizing its commitment to resolving IT issues promptly and collaborating with the RBI to address regulatory concerns.

How has Kotak Mahindra Bank responded to the RBI's directive?

In response to the RBI's directive, Kotak Mahindra Bank clarified that its branches will continue to onboard new customers through traditional channels and offer a full range of services, with the exception of issuing new credit cards. The bank has also implemented measures to strengthen its IT systems and resolve issues swiftly to ensure seamless service delivery to its customers.

In conclusion, the RBI's decision to restrict Kotak Mahindra Bank's onboarding of new customers and issuance of credit cards underscores the importance of robust IT systems and regulatory compliance in the banking sector. As the bank works towards resolving the identified deficiencies and improving its operations, customers can expect continued service quality and reliability from Kotak Mahindra Bank.