RBI Cracks Down on Kotak Mahindra: Online Banking Halt
The Reserve Bank of India has imposed a ban on Kotak Mahindra Bank, prohibiting the registration of new customers via online services and applications.
This measure was taken after “significant deficiencies” were identified in the management of IT systems, including IT asset management, updates and changes, user access, vendor-related risks, data security, data leakage prevention strategies, and disaster recovery strategies.
Kotak Mahindra Bank, which serves over 41 million customers and manages assets exceeding $500 billion, stated in its annual report for the fiscal year 2022/2023 that it had focused on enhancing security measures. However, the Central Bank deemed these efforts as “insufficient.” A two-year inspection revealed that the bank had failed to adequately address IT risks and information security management.
Additionally, the bank experienced technical failures that impacted customers, raising concerns about its ability to maintain operational resilience in line with its growth rate.
Two Kotak employees and two other individuals familiar with the matter, speaking on condition of anonymity, reported that a large number of customers registering through the Kotak811 digital platform caused intermittent operational failures. This overload led to disruptions in the system of instant payments within a popular Indian payment system.
As a result, to allow the bank to focus on improving its technologies, the Reserve Bank found it necessary to limit the acquisition of new customers. Should the bank successfully pass an external audit of its systems, the Reserve Bank will consider lifting these restrictions.
In response to the regulator’s actions, Kotak Mahindra Bank stated that it had taken specific steps to implement new technologies and strengthen its IT systems. The bank also emphasized its ongoing cooperation with the Reserve Bank to promptly resolve existing issues.
Despite these challenges, the bank remains confident that such measures will not significantly impact Kotak Mahindra Bank’s overall business. However, following the news of the new customer registration ban, the bank’s stock fell by 11%.
