IN a significant development having implications for the entire banking sector, the Reserve Bank of India (RBI) has directed Kotak Mahindra Bank Limited to stop the onboarding of new customers through online and mobile banking with immediate effect and also barred it from issuing credit cards henceforth. The RBI has noted with concern that in the absence of 'a robust IT infrastructure and IT risk management framework, the bank's core banking system and its online and digital banking channels have suffered frequent outages in the past two yearshellip; resulting in serious customer inconvenience'. One such major service disruption occurred on April 15. The bank was found deficient in building operational resilience, even as the RBI clarified that there were no curbs on providing services to existing customers, including those using credit cards.

In October 2023, the RBI had imposed a penalty on the bank to the tune of Rs 3.95 crore over non-compliance issues with regard to the code of conduct for outsourcing of financial services, customer service, recovery agents, loans and advances. Finding itself on the back foot again, the bank has stated that it would commission a comprehensive audit of its IT systems under the 'approval and supervision' of the RBI. It is laudable that India's central bank has taken pre-emptive action in the interest of customers. This is a stern reminder to all banks that they cannot afford to be complacent about their digital banking and payment systems.

With the financial ecosystem dominated by digital transactions, banks need to invest heavily in tech infrastructure to ensure that their customers' money remains safe. Fraudsters are always on the lookout for chinks in the banking armour. The resilience of tech platforms is being put to the test on a daily basis. Banks must be proactive in addressing the glitches, failing which public trust in the banking system will be hit hard.