RBI bars Kotak Mahindra Bank from issuing new credit cards

RBI bars Kotak Mahindra Bank: The Reserve Bank of India (RBI) on Wednesday, April 24, barred Kotak Mahindra Bank from issuing new credit cards. The apex bank has also directed the private lender to stop adding new customers via online mode.

The RBI said that it has taken action after investigating the bank's technology in 2022 and 2023. The central bank said that even after repeated warnings, the bank did not make any improvements, hence the decision. It said that due to a lack of adequate IT infrastructure, the bank's customers have faced issues several times in the past two years. The RBI said that it will review the restrictions after an external audit.

"In the absence of a robust IT infrastructure and IT Risk Management framework, 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, the recent one being a service disruption on April 15, 2024, resulting in serious customer inconveniences. 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," the RBI said in its circular.

The RBI added that in the past two years, it has been in continuous high-level engagement with the lender on all these concerns 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 on 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, the statement added.

Kotak Mahindra Bank responds to RBI move

Responding to RBI's move to bar it from issuing new credit cards, the bank said, “We have received an order from the RBI which directs us to temporarily pause onboarding of new customers though our online and mobile banking channels and issuance of fresh credit cards. The Bank has taken measures for adoption of new technologies to strengthen its IT systems and will continue to work with RBI to swiftly resolve balance issues at the earliest.  We want to reassure our existing customers of uninterrupted services, including credit card, mobile and net banking. Our branches continue to welcome and onboard new customers, providing them with all the Bank’s services, apart from issuance of new credit cards.”