After being saddled for years with the biggest bundle of bad loans anywhere in the world, the Indian financial system had only recently found its footing. But with profitability at a decade high and capitalization well in excess of the regulatory minimum, the country’s banks have begun slipping again. This time, they’re falling on the banana peel of technology.
The latest casualty is Kotak Mahindra Bank Ltd. Last week, the regulator ordered what was until recently India’s fourth-largest lender by market value to stop onboarding new customers through its online and mobile banking channels and refrain from issuing fresh credit cards. The Reserve Bank of India said it had found “serious deficiencies” in how the bank manages user access, vendor risk and data security.This is a pretty stiff punishment: More than 98% of the transaction volume in Kotak’s savings accounts were from digital or non-branch methods in the December quarter; 99% of new credit cards and 95% of personal loans it sold were also online.
While Kotak says it has already taken some measures and will “swiftly resolve balance issues at the earliest,” the sheer brazenness of last year’s scam at UCO Bank is likely to make the RBI very cautious in lifting the ban. UCO is a small, government-owned lender based in the eastern city of Kolkata. Last November, it discovered that some customers had received nearly $100 million via interbank electronic fund transfers, but accounts at the sending institutions hadn’t been debited.
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