India's central bank bars Kotak Mahindra Bank from taking on new customers digitally
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India's central bank said on Wednesday it had barred Kotak Mahindra Bank from taking on new customers via its online and mobile banking channels, and from issuing new credit cards, due to information technology-related deficiencies.
The Reserve Bank of India (RBI) said it had taken action against the country's fourth largest private lender after its examination of the bank's IT systems in 2022 and 2023 raised concerns and the bank failed to address them adequately.
"For two consecutive years, the bank was assessed to be deficient in its IT Risk and Information Security Governance, contrary to requirements under Regulatory guidelines," the RBI said.
The central bank has taken a string of measures against non-compliant entities in recent months, including monetary penalties and business restrictions.
In December 2020, the RBI took similar action against largest private lender HDFC Bank, barring it from recruiting new credit card customers or launching digital businesses after its digital payment services were hit by a power failure. That ban was lifted in August 2021.
The RBI said it was placing the restrictions on Kotak Mahindra Bank in the interest of customers and to avoid a possible prolonged outage that might affect customer service and broader digital banking and payment systems.
"The RBI's action is obviously going to impact the bank's ambition to get to a 15% share of unsecured loans but the bigger impact is going to be on the savings accounts," said Pranav Gundlapalle, senior research analyst at AllianceBernstein.
Kotak had a 5.8% share of outstanding credit card balances as of end-March, with its book having increased 52% year-on-year in the December quarter.
The bank was relying on digital means given its sub-par branch network, Gundlapalle said.
The RBI will review the restrictions after a comprehensive external audit which must be commissioned by the bank with prior approval of the RBI, and once all the deficiencies are fixed to the satisfaction of the central bank.
"The bank shall, however, continue to provide services to its existing customers, including its credit card customers," the RBI said.
