RBI lifts restrictions on Kotak Mahindra Bank on onboarding new customers

In April last year, the RBI placed restrictions on the bank as it failed to plug gaps in its information technology (IT) systems

Ten months after the Reserve Bank of India (RBI) imposed business restrictions on Kotak Mahindra Bank, the regulator on Wednesday revoked its decision after being satisfied with the remedial actions taken by the lender.

 

In its response to the RBI decision, the lender said it would continue to work in tandem with the regulator to shortly resume taking on new customers digitally and issuing fresh credit cards.

 

With this, the “cease and desist” order for all banks and non-banking financial companies stands removed, except that for Paytm Payments Bank.

 

Following the embargo, the lender initiated remedial measures, submitted compliances, and commissioned an external audit to validate the compliances.

 

 

“…the bank initiated remedial measures to address the supervisory concerns and submitted compliances to the Reserve Bank. The bank also commissioned an external audit, with prior approval of RBI, to validate the compliances,” the RBI said in a statement on Wednesday.

 

“Now, having satisfied itself based on the submissions, and remedial measures undertaken by the bank, the Reserve Bank has decided to lift the restrictions placed on Kotak Mahindra Bank,” the RBI statement added.

 

Kotak Mahindra Bank said: “We welcome the Reserve Bank of India’s decision to lift the business restrictions on Kotak Mahindra Bank. This decision follows the bank’s successful implementation of remedial measures and compliance validation through an external audit.”  

 

In April last year, the private lender was debarred from taking on new customers through its online and mobile banking channels, as well as issuing fresh credit cards.

 

The restrictions were imposed because the bank supposedly failed to plug gaps in its information technology (IT) systems, which resulted in frequent outages in its core banking system and online channels in the preceding two years, resulting in inconvenience to customers.

 

“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,” the RBI had said, adding that 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”.

 

Since the restrictions took effect, Kotak Mahindra Bank’s credit card outstanding dropped by 978,860 to 5.02 million as of December 2024. In April, the bank’s outstanding credit cards stood at a little over six million.

 

The bank has also seen a substantial fall in its net interest margin (NIM) since the RBI restrictions were imposed.

 

In Q3FY25, its margin stood at 4.93 per cent compared to 5.02 per cent in Q1FY25 and 5.28 per cent in Q4FY24.

 

The restrictions came just a few months after Ashok Vaswani was appointed managing director and chief executive officer in January last year.

 

Last week, during the post-monetary policy press conference, RBI Governor Sanjay Malhotra stated the central bank’s policy of imposing restrictions on regulated entities was a measure of the last resort, to be used in the rarest of the rare circumstances — when all other measures fail.

 

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