RBI bars Kotak Bank from onboarding new online customers, issuing new credit cards
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
According to Ashutosh Mishra of Ashika Stock Broking, the RBI restrictions on Kotak Mahindra Bank is expected to stay for at least one year. “This will at least take one year if I go through the many more incidents where the RBI has taken the similar actions against either the banks or even Visa, MasterCard in many of these cases. These IT systems require thorough audits from the RBIs side and when they get satisfied then only they lift these restrictions,” the analyst said.
The Reserve Bank of India (RBI) on Wednesday, April 24, directed private lender Kotak Mahindra Bank to stop onboarding new customers through its online and mobile banking channels and issuing fresh credit cards with immediate effect.
The directive comes as part of regulatory actions taken by the central bank in response to concerns regarding compliance and risk management at Kotak.
However, the RBI said that the lender can continue to provide services to its existing customers, including its credit card customers.
“The RBI has today, in exercise of its powers under Section 35A of the Banking Regulation Act, 1949, directed Kotak Mahindra Bank to cease and desist, with immediate effect, from (i) onboarding of new customers through its online and mobile banking channels and (ii) issuing fresh credit cards,” as per a statement from the RBI.
These actions are being taken after the central bank looked at Kotak’s IT systems for the years 2022 and 2023 and found some big problems. The lender is yet to fix those problems properly or quickly enough, the RBI said in a statement.
Further, the RBI said that the bank didn’t manage its computer equipment, software updates, or who can access its systems well enough. It also didn’t do a good job of making sure its data was secure or planning for disasters.
For two years in a row, the lender didn’t meet the rules for how it should handle IT security. And even after being told to fix these issues, the bank didn’t do a good job of following through, as per the statement.
The curbs have been imposed 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, the statement read.
The restrictions now being imposed will be reviewed upon completion of a comprehensive external audit to be commissioned by the bank with the prior approval of the central bank, and remediation of all deficiencies that may be pointed out in the external audit as well as the observations contained in the RBI Inspections, to the satisfaction of the RBI.
These restrictions will stay in place until the bank does a thorough audit by an outside expert. The RBI said the external audit would be commissioned by the bank with a prior approval from it.
“The bank must fix all the problems found in the audit and address any issues from the RBI inspections to the satisfaction of the RBI before the restrictions are lifted,” the central bank stated.
‘RBI bank on Kotak likely to stay for a year’
“This will take at least one year if I go through the many more incidents where the RBI has taken the similar actions against either the banks or even Visa, MasterCard in many of these cases. These IT systems require thorough audits from the RBIs side and when they get satisfied then only they lift these restrictions,” said Ashutosh Mishra of Ashika Stock Broking.
Mishra added: “Where I see the negative impact to come in? I think it will be on onboarding of the new customers through 811, which was one of the major drivers for the new customer acquisition growth for Kotak Mahindra bank. And there we need to understand from the management that what is their strategy in this period and what type of changes they are planning to take to address these issues.”
In another similar incident earlier, the RBI had imposed a temporary ban on HDFC Bank, advising it to stop all launches of digital business generating activities under its yet-to-be-launched Digital 2.0 programme and sourcing of all new credit card customers.
The ban continued for eight months until the RBI was satisfied with necessary compliance on the part of the private sector lender.
Shares of Kotak Bank closed 1.65% higher at ₹1,842.95 apiece on the NSE today.
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