RBI clampdown on Kotak Mahindra Bank: Timeline of recent regulatory actions on large lenders

The Reserve Bank of India barred the bank from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards.

On April 24, the Reserve Bank of India barred Kotak Mahindra Bank (KMB) from adding customers through digital channels and issuing new credit cards. The action followed the bank's “continued failure” to address concerns related to its IT systems.

The ban will not affect existing customers and Kotak can continue to provide services to them, including credit card customers, the RBI said.

"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," the RBI said.

Also read: The questions raised by the RBI's restrictions on Kotak Mahindra Bank

According to the central bank, serious deficiencies and non-compliance were observed in the areas such as 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.

“The intent behind the regulator's action is very clear - they do not want any systemic risk emanating from gaps that they have identified and highlighted to the banks,” said Karan Gupta, director & head - financial institutions, at India Ratings & Research.

"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," the private bank said after the RBI announced the restrictions. The bank assured existing customers there will be no impact on services to them.

"Our branches continue to welcome and onboard new customers, providing them with all the bank’s services, apart from issuance of new credit cards,” the bank said.

This is not the first time the central bank has clamped down on lenders. In the past too, the regulator has acted against banks and non-banking finance companies for non-compliance with regulations.

In the past five years, the central bank has imposed major restrictions on Paytm Payments Bank, Bank of Baroda, Bajaj Finance, HDFC Bank, Mahindra & Mahindra Financial Services, SBM Bank (India), Mastercard Asia/Pacific Pte, and American Express Banking Corp. and Diners Club International, among others.

Curbs have been imposed on carrying out recovery or repossession, onboarding customers on mobile applications, and on disbursal of loans under specific lending products. In some cases, the RBI has lifted the restrictions, whereas in others, they remain.

Also read: RBI action: Kotak Mahindra Bank says taken measures to adopt new tech, assures existing customers

On January 31, the RBI imposed business restrictions on Paytm Payments Bank, citing repeated violations of norms and non-compliance with rules. The regulator barred PPBL from accepting fresh deposits and carrying out credit transactions after February 29.

On November 15, 2023, the RBI directed Bajaj Finance to stop sanction and disbursal of loans under two lending products - eCOM and Insta EMI Card.

On October 10, 2023, the central bank directed Bank of Baroda to suspend further onboarding of customers onto its bob World mobile application. This action was based on material supervisory concerns observed in the manner of onboarding the customers.

SBM Bank (India) was directed on January 23, 2023, to stop all transactions under the Liberalised Remittance Scheme till further orders. The scheme allows Indians to send funds overseas.

Mahindra & Mahindra Financial Services was asked on September 22, 2022, to cease any recovery or repossession activity through outsourcing arrangements.

Paytm Payments Bank was directed by the RBI on March 11, 2022, to stop onboarding of customers.

On July 14, 2021, restrictions were imposed on Mastercard Asia/Pacific with regard to onboarding domestic customers (debit, credit or prepaid) onto its card network from July 22, 2021.

On April 23, 2021, the RBI asked American Express Banking and Diners Club International to stop onboarding domestic customers onto their card networks from May 1, 2021.

On December 2, 2020, the RBI asked HDFC Bank to temporarily halt sourcing new credit cards and stop the launch of its digital business generating activities.