Following this announcement, India’s central bank cited serious deficiencies in Kotak Mahindra Bank’s overall IT systems and risk management practices. The financial institution then ordered Kotak Bank to stop onboarding new clients via its online banking channels and mobile banking channels, while also expecting it to cease issuing new credit cards.
Kotak Mahindra Bank represents a valuable financial institution in the region of India, as well as one important partner for many fintech startups. It also additionally works with multiple fintech firms in order to extend credit to small and medium-sized enterprises (SMEs) and micro, small, and medium-sized enterprises (MSMEs), while also prioritising the process of issuing co-branded credit cards.
The Reserve Bank of India (RBI)’s decision to impose these restrictions on Kotak Bank was based on significant concerns that were stemming from the latter’s IT examinations, which took place for the years 2022 and 2023. The central bank found serious deficiencies and noncompliance in several areas, including patch and change management, IT inventory management, user access management, data security, business continuity planning, as well as vendor continuity planning.
Existing customers and users will not be impacted by the restrictions, but they could impact new retail client additions for the bank, given its overall smaller branch network, peers, and the higher reliance on digital channels. The restriction to issue new cards could also impact the financial institution’s planned shift towards a high share of unsecured loans, as well as it development process in the market.
According to the central bank, Kotak Bank failed to adequately address the issues and to implement satisfactory corrective measures. In addition, its core banking system and digital channels also have experienced frequent and multiple outages, with the most recent one taking place on the 15 of April 2024. The outage caused severe inconvenience and difficulties to customers, while also potentially harming the broader digital banking and payment ecosystem.
The restrictions are set to be reviewed upon completion of a comprehensive external audit, which will be commissioned by the bank with prior RBI approval, alongside the remediation of all identified deficiencies.
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