The Reserve Bank of India (RBI) on Wednesday (April 24, 2024) barred private sector lender Kotak Mahindra Bank (KMB) from issuing fresh credit cards and onboarding new customers through its online and mobile banking channel citing supervisory concerns.
The RBI’s regulatory actions against the private sector bank were in response to concerns around compliance and risk management at the bank.
Nevertheless, the bank will continue to provide services to its existing customers, including its credit card customers. The RBI press release said, “These actions are necessitated based on significant concerns arising out of Reserve Bank’s IT Examination of the bank for the years 2022 and 2023 and the continued failure on the part of the bank to address these concerns in a comprehensive and timely manner. Serious deficiencies and non-compliances 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.”
According to the RBI, the bank was assessed to be deficient in its IT Risk and Information Security Governance for two consecutive years, contrary to requirements under Regulatory guidelines. “During the subsequent assessments, the bank was found to be significantly non-compliant with the Corrective Action Plans issued by the Reserve Bank for the years 2022 and 2023, as the compliances submitted by the bank were found to be either inadequate, incorrect, or not sustained,” said the RBI.
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“In the absence of a robust IT infrastructure and IT Risk Management framework, the bank’s Core Banking System (CBS) and its online and digital banking channels have suffered frequent and significant outages in the last two years, the recent one being a service disruption on April 15, 2024, resulting in serious customer inconveniences. 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,” it added.
In the last two years, the central bank has been in continuous high-level engagement with the bank on all these concerns to strengthen its IT resilience, but the outcomes have been far from satisfactory. Additionally, it was noted that the volume of digital transactions made by the bank, notably those involving credit cards, has recently increased quickly, placing additional strain on the IT infrastructure.
According to the press release, the current restrictions being imposed will be reviewed upon completion of a comprehensive external audit to be commissioned by the bank with the prior approval of RBI.In view of these findings, Kotak Mahindra Bank has been directed to stop the issuance of fresh credit cards and the onboarding of new customers through mobile banking.
