RBI’s diktat on Kotak Mahindra Bank: What should existing customers, fresh loan and credit card applicants do?

The Reserve Bank of India barred the bank from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards.

Kotak Mahindra Bank customers received a jolt on April 24 when the Reserve Bank of India (RBI) barred the lender from taking on new customers through its online and mobile banking channels, and from issuing fresh credit cards, citing serious deficiencies and issues with compliance regarding its technology platforms. These actions followed the RBI’s IT examination of the bank for 2022 and 2023 and the continued failure on the part of the bank to address these concerns in a comprehensive and timely manner, the central bank said.

On April 15, the digital services of Kotak Mahindra Bank were disrupted again, resulting in serious invonvenience to customer. This could have triggered the central bank to take the tough disciplinary action.

A statement from the bank mentioned that it was adopting new technologies to strengthen its IT systems and would continue to work with the RBI to swiftly resolve pending issues at the earliest.

However, the central bank's action has led to confusion in customers’ minds when it comes to using Kotak Mahindra Bank’s digital channels. What should current and prospective customers, especially loan and credit card applicants, do now?

Kotak Mahindra Bank is yet to respond to Moneycontrol’s emailed queries. The article will be updated when the response comes in.

Meanwhile, we answered some of the questions that arose from the development.

Will the current supervisory action affect existing customers and their use of the bank's digital services?

There is no problem with the bank’s digital services if you have a savings account, salary account, loan account or a credit card.

A statement from Kotak Mahindra Bank said, “We want to reassure our existing customers of uninterrupted services, including credit card, mobile and net banking. Our branches continue to welcome and onboard new customers, providing them with all the Bank’s services, other than issuance of new credit cards.”

Also read | RBI ban to affect Kotak Mahindra Bank's co-branded credit card deals, say experts

I had applied for a Kotak Mahindra Bank credit card online. What will happen to my application?

The RBI order has advised the bank to temporarily cease issuing fresh credit cards. “However, if the bank was able to process the card application and approve the card issuance before the central bank had placed the embargo, then the card shall still be issued to the customer,” said Parijat Garg, a digital lending consultant.

The status of a card application can be determined through an online channel or by speaking to a customer service representative. Garg added that if the bank had not approved the card application, the applicant should consider applying for a suitable credit card with another bank.

I applied to open a savings/current account online on April 23, 2024 (Tuesday). What will happen to my application after yesterday’s RBI action?

“The bank will process the application to open a savings account online, as the RBI has restricted only new applications,” said Sumanta Mandal, founder of TechnoFino, a platform that reviews debit and credit cards.

“However, as the cessation applies only to digital onboarding, it’s better to contact the bank branch, check the status of your application and get it processed further through them,” said Garg. This should prevent the application getting stuck in limbo.

Also read | RBI action may hit Kotak Mahindra Bank as majority of business sourced digitally: Brokerages

I had applied for a personal loan online before the RBI’s supervisory action and it was in process with the bank. What will happen to the sanction of that loan now?

If your personal loan has not been sanctioned, chances are that the bank may not process it further and that it could get stuck.

You can, however, speak to the bank’s customer service desk or approach the staff at the nearest branch and get your loan application moved to a branch channel. “The loan processing may take longer than it would usually take for the digital channel. However, the loan shall get processed,” Garg said.

I have a salary/savings account with Kotak Mahindra Bank, and I am planning to apply for a personal loan. Can I make an application online?

No, you cannot apply for a personal loan online despite having a salary/savings account with the bank. “Your loan account is a separate account. It will be a new product and you'll have to reach out to them specifically through a branch,” said a retail banker, requesting anonymity.

When are the restrictions on issuance of new credit cards and onboarding of new customers through its online and mobile banking channels expected to be lifted?

Neither the regulator nor the bank has indicated any timeline yet. If we look at an example in the case of HDFC Bank, which faced similar restrictions on the card issuance because of some restrictions on its tech platform, it took them seven to eight months to get a partial reprieve and about 15 months to get a full clearance. “Since the issues highlighted are quite varied, one can expect at least 10-12 months for the bank to take to get the regulator to lift all restrictions,” Garg added.