RBI Removes Supervisory Restrictions, Allows Kotak Mahindra Bank To On-board New Customers, Issue Fresh Credit Cards

Moneylife Digital Team 12 February 2025

Investor Interest

Following compliance by Kotak Mahindra Bank Ltd, the Reserve Bank of India (RBI) has decided to remove supervisory restrictions imposed on the lender in April 2024. Kotak Mahindra Bank can now onboard new customers and also issue fresh credit cards.

In a release, RBI says, "...Kotak Mahindra Bank initiated remedial measures to address the supervisory concerns and submitted compliances to RBI. The bank also commissioned an external audit, with prior approval of RBI, to validate the compliances. Now, having satisfied itself based on the submissions and remedial measures undertaken by the bank, RBI, has decided to lift the restrictions placed on Kotak Mahindra Bank."

In April last year, RBI asked Kotak Mahindra Bank to cease and desist from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards due to serious deficiencies related to the lender's information technology (IT) management. (Read: Kotak Mahindra Bank MD&CEO Says Actively Working To Address Concerns Raised by RBI)

According to RBI, without a robust IT infrastructure and IT risk management framework, Kotak Mahindra Bank's core banking system (CBS) and its online and digital banking channels have suffered frequent and significant outages in the past few years. One such service disruption occurred on 15 April 2024, resulting in serious customer inconveniences. Kotak Mahindra 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 past few years, RBI says it has been in continuous high-level engagement with Kotak Mahindra Bank on all these concerns with a view to strengthening its IT resilience, but the outcomes have been far from satisfactory. "It is also observed that, of late, there has been rapid growth in the volume of Kotak Mahindra Bank's digital transactions, including transactions pertaining to credit cards, which is building further load on the IT systems."

"The Reserve Bank, therefore, has decided to place certain business restrictions on Kotak Mahindra 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," it added. (Read: Kotak Mahindra Bank Barred from Onboarding New Customers, Issue Fresh Credit Cards)

In a regulatory filing, Kotak Mahindra Bank says, "The Bank has taken concrete steps to adopt new technologies to strengthen its IT systems and will continue to work with RBI to swiftly resolve balance issues at the earliest. The Bank would like to reassure its existing customers of uninterrupted services, including credit card, mobile and net banking. The Bank's branches will continue to onboard new customers, providing them with all the Bank's services, except issuance of new credit cards."

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