Kotak Mahindra Bank barred by RBI from acquiring new customers under Section35A of Banking Regulation Act, 1949 due to its poor IT system
Kotak Mahindra Bank was recently barred from on-boarding new customers via online and mobile banking, and also from issuing new credit cards by the Reserve Bank of India.
The Reserve Bank of India exercised its powers under Section 35A of the Banking Regulation Act, 1949 and directed Kotak Mahindra Bank Limited to cease and desist, with immediate effect. The bank was however allowed to continue its services to its existing customers, including its credit card customers.
According to The Telegraph the bank was found to have failed to address concerns which were raised during a regulatory examination of the bank’s IT systems and practices in 2022 and 2023.
The central bank’s statement sheds more light on the matter. It states that, “In the past two years, the Reserve Bank has been in continuous high-level engagement with the bank (Kotak Mahindra Bank) on all these concerns with a view to strengthening its IT resilience, but the outcomes have been far from satisfactory.”
It also mentions that rapid growth in the volume of the bank’s digital transactions, including transactions pertaining to credit cards, is building further load on the IT systems.
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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 statement RBI adds.
Since the news broke out, Kotak Mahindra Bank shares dropped 10 percent. However the bank promises uninterrupted services, including credit card, mobile and net banking in a stock exchange filing, reported by Mint.
“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,” it added.
These developments have sounded alarm bells across the banking sector, prompting other major banks to reassess their security measures. In discussions with top Chief Information Security Officers (CISOs), it has been confirmed that board meetings are currently taking place to evaluate their security preparedness.