RBI Clears Kotak Mahindra Bank’s Digital Onboarding Ban

The Reserve Bank of India (RBI) has removed the restrictions placed on Kotak Mahindra Bank, allowing it to resume onboarding new customers online and issuing fresh credit cards. These restrictions were imposed in April 2024 due to critical shortcomings in the bank’s IT infrastructure. With the corrective measures now in place, the bank can fully restart its digital operations.

Why Were Restrictions Imposed on Kotak Mahindra Bank?

In April 2024, the RBI directed Kotak Mahindra Bank to stop onboarding customers through digital platforms and halted the issuance of new credit cards. This decision was based on IT audits conducted in 2022 and 2023, which found deficiencies in multiple areas, including:

• IT inventory management
• Patch and change management
• User access controls
• Vendor risk assessment
• Data security and business continuity planning

The RBI observed that despite repeated warnings, Kotak Mahindra Bank had not sufficiently addressed these risks, leading to regulatory intervention.

What Steps Did Kotak Mahindra Bank Take to Comply?

To regain regulatory approval, Kotak Mahindra Bank implemented several corrective measures:

1. External IT Audit: The bank engaged Grant Thornton Bharat as an independent auditor to review and validate its IT systems.

2. Tech Infrastructure Strengthening: The bank collaborated with leading firms such as Accenture, Infosys, Oracle, and Cisco to enhance its digital security and risk management capabilities.

3. Improved Risk Controls: The bank focused on strengthening user access controls, patch management, and vendor risk assessment to ensure compliance with RBI’s guidelines.

After reviewing these actions, the RBI found Kotak Mahindra Bank’s compliance measures satisfactory and lifted the restrictions.

How Will This Impact Kotak Mahindra Bank and Its Customers?

The lifting of restrictions is a major relief for Kotak Mahindra Bank, particularly in the high-margin unsecured loan segment. The ability to issue new credit cards will boost its fee-based income and expand its customer base.

• The bank is expected to aggressively acquire new customers to regain lost market share.
• Digital banking services will resume fully, making onboarding seamless for new customers.
• The decision also reinforces RBI’s focus on IT security and risk management across the banking sector.

This development marks a significant step in ensuring that banks comply with IT security standards while continuing to offer uninterrupted services to customers.

Summary of the news