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RBI Fines 14 Indian Banks For Non Compliance of Norms of Banking Regulations

The Non-compliance with the norms by many Indian Banks in the past has cost a lot to the people who have trusted their money with

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RBI Issues Notice to Indian Banks
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The Non-compliance with the norms by many Indian Banks in the past has cost a lot to the people who have trusted their money with the bankers. There are hundreds of examples of noncompliance in the past that gave advantage to the businessmen like Vijay Mallya, Mehul Choksi, and many such others to escape after defaulting the banks. 

India’s apex monetary authority, the Reserve Bank of India (RBI) has fined 14 banks on Wednesday, July 7, for non-compliance with norms and contravention of certain sections of the Banking Regulation Act, 1949. This is perhaps the first time that so many banks are facing monetary penalization at once.

The penalty amounts to a total of 14.5 crore rupees. The individual penalties range from 50 lakhs to 2 crores (rupees). The penalty was imposed on grounds of non-compliance with some of RBI’s norms and provisions based on its directive, these were mainly- ‘Loans and Advances – Statutory and Other Restrictions’, ‘Bank Finance to NBFCs’, and ‘Lending to Non-Banking Financial Companies (NBFCs).’

Among other norms which the banks failed to uphold were provisions of directions on ‘Creation of a Central Repository of Large Common Exposures – Across Banks’ read with the contents of Circular on ‘Reporting to Central Repository of Information on Large Credits’, ‘Operating Guidelines for Small Finance Banks.’

Lastly, banks were also charged for contravention of provisions of two Sections of the Banking Regulation Act, 1949. These were Section 19(2) and Section 20(1).

Section 19(2) of the Banking Regulation Act, 1949 bars banks from holding shares in any company, whether as pledgee, mortgagee, or absolute owner, of an amount exceeding 30% of the paid-up share capital of that company or 30% of its own paid-up share capital and reserves, whichever is less.

Section 20 (1) of the Act prohibits banks from granting loans or advances on the security of their own shares, or entering into any commitment for granting any such loans or advances to or on behalf of:

  1. Any of its directors
  2. Any firm in which any of its directors is interested as partner, manager, employee or guarantor
  3. Any company (not being a subsidiary of the bank or a company registered under section 25 of the Companies Act, 1956 or a government company) of which any of the directors of the bank is a director, managing agent, manager, employee or guarantor or in which he holds a substantial interest
  4. Any individual in respect of whom any of its directors is a partner or guarantor

While the country’s biggest lender, State Bank of India was at the lowest end of the spectrum, Bank of Baroda has slammed with the highest penalty of Rs. 2 crores. Some other major banks that were fined include the Central Bank of India, IndusInd Bank, and Bandhan Bank. All of these, as well as the remaining banks, were fined Rs. 1 crore each.

“This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers,” said the RBI. Therefore, the move will not affect the customer-related activities of the banks.

“A scrutiny in the accounts of the companies of a Group was carried out by RBI and it was observed that the banks had failed to comply with provisions of one or more of the aforesaid directions issued by RBI and/or contravened provisions of the Banking Regulation Act, 1949,” RBI said in a statement. As per an updated article by india.com, the “Group” that is being referred to here, is the “crisis-ridden Dewan Housing Finance Corporation (DHFL) and its group companies”. However, this has not been explicitly stated by the central bank itself.

The move was not an arbitrary one as after issuing the notices regarding penalty, the RBI solicited show-cause notices from the banks. They were given time to submit replies regarding their charges, and an opportunity to justify why they must be exempted from the penalty. The decision to penalize was made by the regulator after examining all the submissions.

“The replies received from the banks, oral submissions made in the personal hearings, wherever sought by the banks, and examination of additional submissions, where made, were duly considered, and to the extent the charges of non-compliance with RBI directions/contraventions of provisions of Banking Regulation Act, 1949 were sustained, RBI concluded that it warranted imposition of monetary penalty on aforementioned fourteen banks,” said the RBI in its public statement.

The penalties have been imposed in exercise of powers vested in RBI under the provisions of section 47 A (1) (c) read with sections 46 (4) (i) and 51 (1), of the Banking Regulation Act, 1949, as applicable, the RBI said in a statement.

Bank Name Penalty (in Rupees, crores)
Bank of Baroda 2
Central Bank of India 1
Bank of Maharashtra 1
Bandhan Bank 1
IndusInd Bank 1
Karnataka Bank 1
South Indian Bank 1
Karur Vysya Bank Ltd. 1
Credit Suisse AG 1
Punjab and Sind Bank 1
The Utkarsh Small Finance Bank Ltd. 1
The Jammu and Kashmir Bank Ltd. 1
Indian Bank 1
State Bank of India 0.50
Total 14.50
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