The Reserve Bank of India (RBI) has imposed strict restrictions on India’s third-most valued private bank Kotak Mahindra Bank from onboarding new customer digitally.
With the beginning of new financial year, another private bank got stern warning from RBI for ineffective IT system. In the last month, Paytm bank had to change their financial structure overnight. The same fate is waiting for Kotak Mahindra Bank.
In this article, we will discuss about the ongoing issue in detail.
RBI mentioned: “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 further mentioned “Kotak had failed to fix its IT systems after being asked to do so continuously over the past two years.”
The regulator cited “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, in the bank.”
In the past two years, the RBI has been focusing on strengthening its IT resilience for all the banks. For Kotak Mahindra Bank, the report was 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 RBI added.
In 2017, the Kotak Mahindra bank had introduced a zero-balance digital bank account named Kotak811. It was named after famous demonetisation event on November 8, 2016. Under this division, the onboarding process was entirely digital. As per latest data, approximately 17.5 million savings accounts were opened under Kotak811, till March 31, 2023.
Meanwhile, in the absence of a robust IT infrastructure as well as IT Risk Management framework, Kotak Mahindra bank’s Core Banking System (CBS) and its online wing have suffered outages frequently in the last two years. The most recent incident happened on April 15, 2024, which led to a serious customer inconveniences.
Shares of Kotak Mahindra Bank Ltd. fell around 10% on Thursday after RBI’s action. Meanwhile, this is the biggest single-day drop for Kotak Mahindra Bank stock since March 23, 2020.
Since the announcement by RBI, there is an increasing tension among existing customers.
Meanwhile, the bank assured there would be no interruption to existing customers.
Pranav Gundlapalle, senior research analyst at AllianceBernstein told “The RBI's action is obviously going to impact the bank's ambition to get to a 15 per cent share of unsecured loans but the bigger impact is going to be on the savings accounts.”
“While existing customers will continue to be there, the new customers would be cautious, and might not take credit cards or open new accounts,” Wriju Ray, Chief Business Officer, of IDfy, a Mumbai-based identity verification and digital onboarding platform said.
Amidst controversy, the bank said in a recent statement: “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.”
RBI’s restrictions on Kotak Mahindra Bank will surely impact bank’s customer acquisition targets.
