RBI restricts Kotak Mahindra Bank from online customer onboarding

The RBI’s directive, issued under Section 35A of the Banking Regulation Act, 1949, underscores the central bank’s concerns about deficiencies observed during its IT examinations of KMB for the years 2022 and 2023. Despite receiving corrective action plans from the RBI in both years, subsequent assessments revealed ongoing non-compliance by the bank.

| Updated: 24 April, 2024 6:08 pm IST
RBI Bars Kotak Mahindra Bank from Onboarding New Customers Online, Issuing Credit Cards

NEW DELHI: In a significant regulatory move, the Reserve Bank of India (RBI) on Wednesday barred Kotak Mahindra Bank from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards.

The RBI’s directive, issued under Section 35A of the Banking Regulation Act, 1949, underscores the central bank’s concerns about deficiencies observed during its IT examinations of KMB for the years 2022 and 2023. Despite receiving corrective action plans from the RBI in both years, subsequent assessments revealed ongoing non-compliance by the bank.

The RBI stated that the bank had failed to address these concerns in a comprehensive and timely manner, despite receiving corrective action plans for both years. The bank’s submissions regarding compliance were deemed insufficient, inaccurate, or unsustainable.

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The restrictions will not impact existing customers, and the bank will continue to provide services to them, including credit card customers. However, the bank is barred from onboarding new customers through online and mobile banking channels and issuing fresh credit cards until further notice.

The RBI’s action is aimed at preventing any possible prolonged outage that 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.

As a result of these shortcomings, KMB’s core banking system (CBS) and its online and digital banking channels experienced frequent and significant outages over the past two years, culminating in a service disruption on April 15, 2024. The RBI’s action aims to prevent further disruptions that could impact both the bank’s ability to provide efficient customer service and the stability of digital banking and payment systems.

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