Supervisory Action against Kotak Mahindra Bank Limited under Section 35A of
the Banking Regulation Act, 1949
The Reserve Bank of India has today, in exercise of its powers under Section 35A
of the Banking Regulation Act, 1949, directed Kotak Mahindra Bank Limited
(hereinafter referred to as ‘the bank’) to cease and desist, with immediate effect,
from (i) onboarding of new customers through its online and mobile banking
channels and (ii) issuing fresh credit cards. The bank shall, however, continue to
provide services to its existing customers, including its credit card customers.
These actions are necessitated based on significant concerns arising out of
Reserve Bank’s IT Examination of the bank for the years 2022 and 2023 and the
continued failure on part of the bank to address these concerns in a comprehensive
and timely manner. 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. 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.
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.
In the past two years, the Reserve Bank has been in continuous high-level
engagement with the bank on all these concerns with a view to strengthening 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 restrictions now being 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. Further, these restrictions are without prejudice to any other
regulatory, supervisory or enforcement action that may be initiated against the bank
by the Reserve Bank.
CC:- RBI
the Banking Regulation Act, 1949
The Reserve Bank of India has today, in exercise of its powers under Section 35A
of the Banking Regulation Act, 1949, directed Kotak Mahindra Bank Limited
(hereinafter referred to as ‘the bank’) to cease and desist, with immediate effect,
from (i) onboarding of new customers through its online and mobile banking
channels and (ii) issuing fresh credit cards. The bank shall, however, continue to
provide services to its existing customers, including its credit card customers.
These actions are necessitated based on significant concerns arising out of
Reserve Bank’s IT Examination of the bank for the years 2022 and 2023 and the
continued failure on part of the bank to address these concerns in a comprehensive
and timely manner. 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. 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.
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.
In the past two years, the Reserve Bank has been in continuous high-level
engagement with the bank on all these concerns with a view to strengthening 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 restrictions now being 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. Further, these restrictions are without prejudice to any other
regulatory, supervisory or enforcement action that may be initiated against the bank
by the Reserve Bank.
CC:- RBI
