On Wednesday, the RBI asked private-sector lender Kotak Mahindra Bank to stop onboarding new customers through its online and mobile banking applications. It also barred the bank from issuing fresh credit cards.
Officials in the Ministry of Finance said the banking regulator – the Reserve Bank of India (RBI) – has all the powers to take such decisions in the digital banking and payments ecosystem.
The Centre is in support of the decision by the Reserve Bank of India to conduct supervisory action against banks for failures to plug technological gaps in their systems.
Officials in the Ministry of Finance said the banking regulator – the Reserve Bank of India (RBI) – has all the powers to take such decisions in the digital banking and payments ecosystem.
“RBI is not acting aggressively. Some entities may have not been able to manage the volume of transactions, and penalties alone may have not addressed the problems,” an official added.
The regulator, the official said, has been following well-calibrated approach since 2016 when the digital boom in the finance sector took off. “The curbs will help banks prepare a strategy to handle the large volumes and serve existing customers at full capacity”, he added.
On Wednesday, the RBI asked private-sector lender Kotak Mahindra Bank to stop onboarding new customers through its online and mobile banking applications. It also barred the bank from issuing fresh credit cards.
The regulator said the action was necessary as the bank had failed to plug gaps in its information technology systems. There were frequent outages in the bank’s core banking system and online channels in the last two years, inconveniencing customers.
The RBI said the decision to place business restrictions was in the interest of customers and to prevent any possible outrage in the future.
Commenting on the matter, Siddarth Bhamre, Head of Research, Asit C Mehta Investment Interrmediates, said the RBI is one of the most respected central banks in the world. “It has time and again shown that it’s a proactive institution. Be it monetary policy or regulatory action, RBI has taken steps to mitigate systemic risk before it raises its ugly head”, he said.
Bhamre added that barring Kotak Mahindra Bank from opening fresh accounts online or issuing credit cards is not the first time RBI has cracked its whip on any big name.
In 2020, it was HDFC BANK and very recently it was PAYTM which bore the brunt of RBI’s measures to protect consumer interest. RBI has always ensured that penalizing doesn’t impact existing account holders or users of financial services adversely, otherwise, such measures won’t serve its purpose.
Enough time is given to consumers to switch to different institutions or the penal actions on banks have no impact on existing users. Even for financial institutions, the ban is not on a permanent basis. Once the institution in question takes the corrective measures, the regulator has allowed them to resume their operations.
