Kotak Mahindra Bank can no longer accept new customers online or through its mobile app, and they’re also pausing issuing new credit cards right away, as directed by the Reserve Bank of India (RBI).
These actions from the RBI stem from issues found in Kotak Mahindra Bank’s IT system during 2022 and 2023.
This move by the RBI has left current customers worried about the safety of their money in their accounts and how well their credit cards will work.
RBI Curbs on Kotak Mahindra Bank
Due to worries about data security and the bank’s inadequate IT setup, the Reserve Bank of India has stopped Kotak Mahindra Bank from signing up new online customers or giving out new credit cards right away. However, the bank can still help its current customers, including those with credit cards.
According to a statement from the Reserve Bank of India, they’ve used their authority under Section 35A of the Banking Regulation Act, 1949, to tell Kotak Mahindra Bank to stop adding new customers online and via mobile banking and to stop issuing new credit cards immediately. However, existing customers, including those with credit cards, will still get services from the bank.
The RBI’s move comes after concerns raised during the bank’s IT examinations in 2022 and 2023, and the bank’s failure to fix these issues promptly and thoroughly.
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How Will Existing Customers Be Affected?
Existing users need not worry as the RBI has confirmed that the bank will continue to serve them, including those with credit cards.
RBI Flags IT Concerns at Kotak Mahindra Bank
The RBI mentioned various concerns about Kotak Mahindra Bank’s IT system, such as shortcomings in managing IT assets, handling software updates, controlling user access, managing vendors’ risks, ensuring data security, preventing data leaks, and planning for business continuity and disaster recovery.
The RBI stated that Kotak Mahindra Bank did not meet regulatory requirements for IT risk and information security governance for two consecutive years.
Over the last couple of years, Kotak Mahindra Bank has experienced several disruptions in its Core Banking System (CBS) and digital banking services. On April 15, there was a recent service interruption that caused problems for customers.
Inadequate IT setup and risk management made things worse, as per RBI.
The bank saw a big rise in digital transactions, like credit card payments, which put more pressure on its IT systems. RBI put these limits to protect customers and avoid long service disruptions that could hurt customer satisfaction and digital banking.
The restrictions will stay until Kotak Mahindra Bank does an external audit, okayed by RBI, and fixes all the problems RBI found, making the central bank happy.
About Kotak Mahindra Bank
In 1985, Uday Kotak kickstarted Kotak Mahindra’s journey by establishing Kotak Capital Management Finance for investment and financial services. Soon after, Anand Mahindra and his father Harish Mahindra joined in, and the company got a new name, Kotak Mahindra Finance.
Fast forward to 2003, Kotak Mahindra Finance Ltd. obtained a banking license from RBI, making history as the first non-banking finance company in India to transition into a bank. Today, the bank offers a wide array of services including commercial banking, stock broking, mutual funds, insurance, and investment banking.
By the end of last year, the bank boasted a staggering 4.8 crore customers, with 1,869 branches and 3,239 ATMs spread across the country.
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RBI Curbs on Kotak Mahindra Bank FAQs
Q.1. What prompted RBI to impose restrictions on Kotak Mahindra Bank?
Ans. The RBI’s actions were prompted by concerns about data security and shortcomings in the bank’s IT system during 2022 and 2023.
Q.2. How will existing Kotak Mahindra Bank customers be affected?
Ans. Existing customers, including those with credit cards, will continue to receive services as usual despite the restrictions on new sign-ups.
Q.3. What specific IT concerns did the RBI flag at Kotak Mahindra Bank?
Ans. The RBI highlighted issues with managing IT assets, software updates, user access control, vendor risk management, data security, and disaster recovery planning.
Q.4. Why did RBI impose limits on new customer sign-ups and credit card issuance?
Ans. The restrictions aim to protect customers from service disruptions caused by inadequate IT infrastructure and risk management, particularly amid the bank’s increasing digital transactions.
Q.5. How long will the restrictions on Kotak Mahindra Bank last?
Ans. The restrictions will remain until the bank undergoes an external audit approved by the RBI and addresses all identified IT issues to the satisfaction of the central bank.
