RBI Kotak Mahindra Bank News: Credit card & Why Share falling?

rbi kotak news

The Kotak Mahindra Bank Share price started falling after RBI started supervisory Action against the said bank on 24.04.2024. In this regard RBI issued a detailed press release having ref. no. 2024-2025/172 dt.24.04.2024. So let us understand what exactly had happened with the Kotak Mahindra Bank.

The press release reads as: The Reserve Bank of India directed Kotak Mahindra Bank Limited (‘the bank’) to immediately halt two key operations. Firstly, the bank must cease onboarding new customers via its online and mobile banking platforms. Secondly, it is instructed to suspend the issuance of new credit cards. However, services to existing customers, including those with credit cards, will continue uninterrupted.

These directives stem from significant concerns identified during the Reserve Bank’s IT Examination of the bank for the years 2022 and 2023, coupled with the bank’s failure to adequately address these concerns in a timely manner. Various deficiencies and non-compliances were noted as listed below:

  • Spanning IT inventory management
  • Patch and change management
  • User access management
  • Vendor risk management
  • Data security
  • Data leak prevention strategy
  • Business continuity, and
  • Disaster recovery readiness.

For two consecutive years, the bank’s IT Risk and Information Security Governance were found lacking, contrary to regulatory guidelines. Despite corrective action plans issued by the Reserve Bank for 2022 and 2023, subsequent assessments revealed significant non-compliance by the bank, with submitted compliances being deemed inadequate, incorrect, or unsustainable.

The bank’s insufficient IT infrastructure and risk management framework have led to frequent and severe outages in its Core Banking System (CBS) and digital banking channels over the past two years, with the most recent disruption occurring on April 15, 2024, resulting in substantial customer inconvenience. The bank’s failure to develop IT systems and controls commensurate with its growth has left it materially deficient in operational resilience.

Despite ongoing high-level engagement with the bank over the past two years to address these concerns, outcomes have fallen short of expectations. Furthermore, there has been a notable surge in the volume of the bank’s digital transactions, including those involving credit cards, exacerbating the strain on its IT systems.

To safeguard customer interests and prevent potential prolonged outages that could adversely affect both customer service and the digital banking and payment systems ecosystem, the Reserve Bank has imposed specific business restrictions on the bank. These restrictions will be subject to review following the completion of a comprehensive external audit, to be conducted by the bank with the prior approval of the RBI. Any deficiencies highlighted in the external audit, as well as observations from RBI inspections, must be remedied to the satisfaction of the Reserve Bank. These restrictions are implemented without prejudice to any additional regulatory, supervisory, or enforcement actions that may be taken against the bank by the Reserve Bank.

Therefore, due to the above reasons the fear occurred in the investors mind and the impact is reflected in the share price. You may download the press release from here.

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