On Thursday, the shares of banking major Kotak Mahindra Bank tumbled nearly 10 percent. The company’s shares dropped 9.7 percent to 1,665 rupees in pre-open trade, their lowest since March 2023. The stock so far is the biggest drag on the benchmark Nifty 50 index. The stock closed at 1,645.00 INR with −197.80 (10.73%)today. 
Why the drop in stock?
The Central Bank, RBI, has barred the fourth largest private lender, Kotak Mahindra Bank, from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards with immediate effect, temporarily.
The RBI’s action comes due to Kotak’s significant shortcomings in its IT system. Concerns have been arising out of the bank’s IT examination for 2022 and 2023 and the bank’s continued failure to address these concerns in a comprehensive and timely manner.
Additionally, the bank’s online and digital banking channels have suffered frequent and significant outages in the last two years, the most recent one being a service disruption on April 15, 2024, which resulted in serious customer inconveniences.
The RBI’s press release said that “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.”
However, the bank will continue to provide services to its existing customers, including its credit card customers, it added.
How will this affect Kotak?
Online and mobile banking channels play a vital role in customer acquisition and growth. The imposition will seriously hamper the influx of new customers. This will also seriously impact not only the bank’s ability to render efficient customer service but also the financial ecosystem of digital banking and payment systems.
But, this action has been taken in the interest of customers and to prevent any possible prolonged outage.
In the past, RBI has taken action against some banks, including barring them from onboarding new customers, for non-compliance with various regulatory guidelines. HDFC and Bank of Baroda are some of them.
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