The RBI, on Wednesday, barred Kotak Mahindra Bank from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards with immediate effect in the wake of repeated non-compliance with IT norms.
The central bank found "serious deficiencies" in the Kotak Mahindra Bank's IT risk management.
The RBI said the steps against the lender are necessitated based on significant concerns arising out of the regulator's IT examination of the bank for 2022 and 2023 and the continued failure on the part of the bank to address these concerns in a comprehensive and timely manner.
In a statement regarding the supervisory action against the bank, the RBI said: "Serious deficiencies and non-compliances were observed in the areas of IT inventory management, patch and change management, user access management, vendor risk management, data security and data leak prevention strategy, business continuity and disaster recovery rigour and drill, etc."
The Kotak Mahindra Bank has been directed "to cease and desist", with immediate effect, from onboarding of new customers through its online and mobile banking channels and issuing fresh credit cards.
"The bank shall, however, continue to provide services to its existing customers, including its credit card customers," RBI said.
The RBI observed that 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."During the subsequent assessments, the bank was found to be significantly non-compliant with the Corrective Action Plans issued by the Reserve Bank for the years 2022 and 2023, as the compliances submitted by the bank were found to be either inadequate, incorrect or not sustained," the RBI said.
The RBI pointed out that the bank's Core Banking System (CBS) and its online and digital banking channels have suffered frequent and significant outages in the last two years as they lack a robust IT infrastructure and IT Risk Management framework.
"The bank is found to be materially deficient in building necessary operational resilience on account of its failure to build IT systems and controls commensurate with its growth," RBI said.
The regulator further said in the past two years, it has been in continuous high-level engagement with Kotak Mahindra Bank in an attempt to strengthen 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.
"The Reserve Bank, therefore, has decided to place certain business restrictions on the bank as mentioned above, 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," the statement said.
The restrictions imposed will be reviewed upon completion of a comprehensive external audit to be commissioned by the bank with the prior approval of RBI, and remediation of all deficiencies that may be pointed out in the external audit as well as the observations contained in the RBI inspections, to the satisfaction of the Reserve Bank.
These restrictions are without prejudice to any other regulatory, supervisory or enforcement action that may be initiated against the bank by the Reserve Bank, the central bank said.
—with PTI inputs
