RBI prevents Kotak Mahindra Bank from issuing new credit cards & opening online accounts

The Reserve Bank of India (RBI) in a release has stopped Kotak Mahindra Bank from issuing new credit cards and opening new accounts online. Why has this been done, let's find out.

But why

The reason for action against Kotak Mahindra Bank is due to failure in complying with RBI's direction to improve their IT infrastructure.

Today, more and more banking functions rely on technology which also requires adequate measures to keep the data and money of banking customers safe.

As per RBI "Serious deficiencies and non-compliances were observed in the areas of 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"

IMPACT

IMPACT ON BANK

This action by RBI means that the business of Kotak Mahindra Bank will be severely affected. While the bank can open new accounts at their branch, it cannot do it online.

Also, credit card market is an important aspect of banking business and by not being allowed to issue new credit cards, they will miss out on new customers

IMPACT ON CUSTOMERS

The existing customers will not be impacted and the bank will continue to provide services to them as usual.

There is however a risk of losing faith in the bank among customers and they might switch to other bank for their banking needs.

IMPACT ON SHARES

After RBI's action, the shares of the bank has fell over 8%.

This indicates that some investors are selling their shares as they might not have faith in the share .

Please consult a SEBI registered Investment advisors for taking investment decisions.

RBI's ACTION

This not the first time that RBI has taken strict action against a bank. RBI has been very active and has taken similar actions against HDFC Bank in 2020 when it stopped the bank from issuing new credit cards for 8-9 months.

It has also taken steps against Paytm Payments Bank over KYC norms failure.

The broader picture is that the RBI appears to be in no mood to let banks, who do not comply with its requirement, to go without punishment.

While some may believe that the actions by RBI are harsh, but simply putting fine may not be sufficient.

Also as seen from HDFC Bank's case, once the RBI is satisfied with the compliance, Kotak Mahindra Bank may be allowed to resume these activities.

Will that happen or will there be more challenges for Kotak Mahindra Bank, only time will tell.