Factbox-India central bank scrutiny of financial firms leads to restrictions

A Reserve Bank of India (RBI) logo is seen inside its headquarters in Mumbai

By Jaspreet Kalra and Siddhi Nayak

MUMBAI (Reuters) - The Reserve Bank of India's (RBI) increased scrutiny of banks and other financial firms has resulted in a spate of supervisory restrictions, most recently on Kotak Mahindra Bank, India's fourth largest private lender by assets.

On Wednesday the RBI barred Kotak Mahindra Bank from taking on new customers digitally and issuing credit cards, due to information technology-related deficiencies.

Since 2020, the RBI has placed business restrictions on HDFC Bank, India's largest private lender, Paytm Payments Bank, the banking unit of fintech firm Paytm, and JM Financial, among others. Following are some of the key actions:


In December 2020 the RBI ordered HDFC Bank to stop all launches of new digital products and issuance of new credit cards following multiple outages on the bank's digital banking channels.

The restrictions lasted until March 2022 which hindered the bank's business growth, contributing to underperformance of its stock compared to its peers.


In October 2023, the central bank barred state-run Bank of Baroda from adding customers to its mobile app, bob World.

Al Jazeera reported that Bank of Baroda had linked mobile numbers of strangers to boost registrations on the application, compromising security.

The restriction is yet to be lifted.


In November 2023 the RBI ordered India's largest non-bank finance company (NBFC), Bajaj Finance, to stop offering loans under two of its lending products.

The restrictions were levied due to non-adherence with the central bank's digital lending guidelines. The restrictions are still in effect.


At the end of January 2024 the RBI asked Paytm Payments Bank to wind down its operations by March 15 due to persistent compliance issues and supervisory concerns.

Reuters reported that the RBI's concerns stemmed largely from violations of rules on customer due diligence, use of funds and technology infrastructure.


In early March 2024 the RBI barred IIFL Finance, an NBFC, from offering gold loans, citing concerns about the lender's assessment of the gold collateral and violations of the maximum permitted loan-to-value ratio, among other issues.

The restrictions are still in effect.


Also in March 2024, non-bank financier JM Financial was barred from giving out loans against shares and debentures due to regulatory violations and governance concerns.

The central bank said it found serious deficiencies in respect of loans sanctioned by the company for IPO financing. The non-bank lender continues to be barred from operating in the segment.

(Reporting by Jaspreet Kalra and Siddhi Nayak)