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The Reserve Bank of India (RBI) on Wednesday asked Kotak Mahindra Bank to halt issuing new credit cards and on-boarding new customers through online and mobile banking channels. This action comes in response to the RBI's alleged discovery of "serious deficiencies and non-compliances" in certain areas of the bank's operations.
While the directive aims to address compliance and risk management concerns, existing customers, including credit card users, can still avail of the bank's services.
"The Reserve Bank of India has today, in exercise of its powers under Section 35A of the Banking Regulation Act, 1949, directed Kotak Mahindra Bank Limited (hereinafter referred to as ‘the bank’) to cease and desist, with immediate effect, from (i) onboarding of new customers through its online and mobile banking channels and (ii) issuing fresh credit cards. The bank shall, however, continue to provide services to its existing customers, including its credit card customers," said the RBI in a statement.
This is not the first instance of the RBI taking regulatory action against financial institutions. In the last five years, several notable cases have emerged:
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RBI action against Paytm Payments Bank
The RBI imposed business restrictions on Paytm Payments Bank (PPBL) on January 31, citing repeated violations of norms and non-compliance with rules. PPBL was barred from accepting fresh deposits and doing credit transactions after February 29.
A Comprehensive System Audit report and subsequent compliance validation report by external auditors revealed persistent non-compliance and material supervisory concerns, leading to further supervisory action.
No further deposits or credit transactions shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, and National Common Mobility Cards (NCMC) after February 29, except for interest, cashbacks, or refunds. However, customers can withdraw or use their balance without restrictions till exhausted.
The RBI also directed the payments bank to settle all pipeline transactions and nodal accounts by March 15 after which no transaction shall be permitted.
RBI ban on Bank of Baroda World app
On October 10, 2023, the RBI asked Bank of Baroda to suspend on-boarding customers onto the ‘BoB World’ mobile application due to material supervisory concerns in the onboarding process.
Following the RBI's intervention, the bank suspended several officials allegedly involved in manipulating 'BoB World'. Subsequently, in October 2023, the head of digital lending, Akhil Handa, resigned from Bank of Baroda.
In July 2023, media reports said BoB World had tampered with customer accounts. The reports claimed that the lender had linked contact details of different individuals to artificially inflate the number of mobile application registrations. The bank refuted these allegations as factually incorrect.
On October 16, a Moneycontrol report.com said that the lender was likely to submit a rectification report to the RBI based on its audit of the BoB World app.
Ban on Bajaj Finance's eCOM and Insta EMI Card
The RBI, on November 15, directed Bajaj Finance to halt the sanction and disbursal of loans under its two lending products 'eCOM' and 'Insta EMI Card', with immediate effect.
This step was taken due to the company's failure to adhere to the existing provisions of the Digital Lending guidelines of the Reserve Bank of India, particularly the non-issuance of Key Fact Statements (KFS) to the borrowers under these two lending products and deficiencies in the Key Fact Statements issued for other digital loans sanctioned by the company, the RBI stated.
In response, the company stated that the Key Fact Statement is indeed being issued for the loans booked under the two mentioned lending products.
“However, based on the supervisory concerns raised by the RBI, we will undertake a detailed review of the KFS and implement the requisite corrective actions to the satisfaction of the RBI at the earliest,” Bajaj Finance added.
Additionally, the company announced the temporary suspension of the sanction and disbursal of new loans under 'eCOM' and 'Insta EMI Card'.
In the October-December quarter, the non-bank lender stated that it had conducted a comprehensive review of Guidelines on Digital Lending and KFS and is implementing the necessary corrective actions. The company affirmed its commitment to ensuring full compliance with the executive order to the satisfaction of the RBI at the earliest.
“The company is committed to the highest standards of compliance and endeavours to provide seamless financial services to its customers,” the company said.
RBI cracks down on HDFC Bank's internet outages
In December 2020, the RBI instructed HDFC Bank to halt all launches of its forthcoming digital business-generating activities and the sourcing of new credit card customers following recurring outages at its data centre, which disrupted operations.
Additionally, the RBI directed India’s largest private bank to investigate the lapses and establish accountability.
In August 2021, the RBI partially lifted the ban on HDFC Bank, permitting it to resume issuing new credit cards. The private lender subsequently reported issuing a record number of credit cards after the partial lifting of restrictions.
Action against other companies
On September 22, 2022, the central bank enacted stringent measures against Mahindra & Mahindra Financial Services, directing the cessation of all recovery or repossession operations conducted via outsourcing arrangements until further notice.
Conversely, the non-banking financial company (NBFC) retained authorisation to conduct such activities utilising its in-house staff.
The Reserve Bank of India (RBI) also imposed a suspension on SBM Bank (SBM) India's participation in transactions under the Liberalised Remittance Scheme (LRS). Subsequently, partial relief from these restrictions was granted on January 31, 2023.
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