RBI bars Kotak Mahindra Bank from issuing credit cards; Bank's share price falls more than 11%
Uday Kotak, Managing Director of Kotak Mahindra Bank poses for a picture
The Reserve Bank of India (RBI) ordered Kotak Mahindra Bank to stop onboarding new customers through its online and mobile banking channels and from issuing fresh credit cards as well. The bank can, however, provide services to its existing customers, including its credit card customers.
As a result, Kotak Mahindra Bank's share price decreased 10.85% and closed at ₹1,643 on the BSE on Thursday (April 25).
"The Reserve Bank of India has today, in exercise of its powers under Section 35A of the Banking Regulation Act, 1949, directed Kotak Mahindra Bank Limited (hereinafter referred to as 'the 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. The bank shall, however, continue to provide services to its existing customers, including its credit card customers," the RBI statement read.
According to the RBI, serious deficiencies and non compliances were found in the bank's IT inventory management, patch and change management, user access management, vendor risk management, data security, and leak prevention strategy, business continuity, and disaster recovery rigor and drill.
The RBI stated that Kotak Mahindra Bank's Core Banking System (CBS), as well as its online and digital banking channels, have experienced several outages in the last two years.
"In the past two years, the Reserve Bank has been in continuous high-level engagement with the 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 the bank’s digital transactions, including transactions pertaining to credit cards, which is building further load on the IT systems," RBI said.
"The Reserve Bank, therefore, has decided to place certain business restrictions on the 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," RBI said in its statement.
Once Kotak Mahindra Banks completes an external audit with the RBI's prior consent and fixes any shortcomings found in the audit "to the satisfaction of the Reserve Bank," the restrictions will be reconsidered.
(With inputs from agencies)
