RBI's Supervisory Action Pauses Kotak Mahindra Bank's Digital Banking Expansion

In its efforts to advance financial inclusivity and digital banking, Kotak Mahindra Bank aimed to expand its digital-only zero-balance savings accounts. However, the Reserve Bank of India (RBI) intervened, temporarily halting this expansion plan.

Under Section 35A of the Banking Regulation Act, 1949, the RBI has taken supervisory action against Kotak Mahindra Bank Limited. The directive mandates the bank to cease onboarding new customers via online and mobile banking channels and to suspend new credit card issuances, effective immediately. Nonetheless, existing customers, including credit card holders, will continue to receive services.

The RBI's intervention follows concerns highlighted in its IT examinations for 2022 and 2023. Kotak Mahindra Bank's persistent failure to address these concerns promptly led to the regulatory action. Identified deficiencies spanned critical areas such as IT inventory, patch and change management, user access, vendor risk, data security, and business continuity. Despite consecutive years of non-compliance in IT risk governance, the bank remained below regulatory standards. Additionally, it failed to meet RBI's corrective action plans, indicating insufficient, inaccurate, or unsustainable efforts.

This regulatory intervention underscores the challenges inherent in digital banking initiatives. As Kotak Bank and other financial institutions navigate this evolving landscape, they must remain vigilant in upholding regulatory compliance and safeguarding the interests of customers and stakeholders alike.