Kotak Mahindra Bank welcomed the decision, confirming that it would soon resume digital onboarding and credit card issuance. | Image:
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After more than nine months of business restrictions due to concerns over its technology framework, the Reserve Bank of India (RBI) has lifted its “cease and desist” order on Kotak Mahindra Bank (KMB). The move allows the private sector lender to issue new credit cards and onboard fresh customers via online and mobile banking channels.
The RBI stated that it is “satisfied” with the remedial measures undertaken by KMB, including a third-party IT audit conducted by an external consultant and other corrective steps.
RBI’s Regulatory Approach Under New Leadership
The decision to ease restrictions comes under the new leadership of RBI Governor Sanjay Malhotra, who recently indicated a more measured approach to regulatory interventions. Unlike his predecessor Shaktikanta Das—who imposed prolonged business restrictions on multiple financial entities, including a 15-month curb on HDFC Bank—Malhotra has emphasized the need to consider the cost of regulatory actions before implementation.
Following an evaluation of Kotak Mahindra Bank’s corrective actions, the RBI announced:
“Having satisfied itself based on the submissions and remedial measures undertaken by the bank, the Reserve Bank has decided to lift the aforementioned restrictions placed on KMB.”
Kotak Mahindra Bank welcomed the decision, confirming that it would soon resume digital onboarding and credit card issuance.
Impact of the Embargo on Kotak Mahindra Bank
During the restrictions, the bank’s total outstanding credit cards dropped from 59 lakh in March 2024 to over 50 lakh in December. Its share of unsecured loans also fell to 10%. The bank had previously estimated the financial impact of the embargo at ₹450 crore annually.
Despite the setback, KMB’s management has maintained that the pause allowed them to enhance their systems. CEO Ashok Vaswani stated in January:
“We have done a lot of work, strengthened risk resilience, and improved cybersecurity. We have also developed new apps and enhanced user experiences.”
Why RBI Imposed Restrictions
The RBI had imposed business curbs on Kotak Mahindra Bank in April 2023 under Section 35A of the Banking Regulation Act. The decision was based on serious deficiencies identified in the bank’s IT infrastructure during assessments in 2022 and 2023. The key concerns included:
- IT inventory management
- Patch and change management
- User access management
- Vendor risk management
- Data security and leak prevention
- Business continuity and disaster recovery measures
With corrective actions now in place, the bank is poised to regain its growth momentum.
Market Response
Following the announcement, Kotak Mahindra Bank’s stock saw a 1.35% rise, closing at ₹1,943.3 on the BSE on Wednesday, even as the benchmark index corrected by 0.16%.
