The Reserve Bank of India (RBI) has taken action against four financial institutions for breaching regulatory norms under the Banking Regulation Act, 1949, and the Reserve Bank of India Act, 1934. The penalties aim to ensure compliance and operational discipline. Here’s a summary of the cases:
1. The Periyakulam Co-operative Urban Bank Ltd., Tamil Nadu
Penalty: ₹2,00,000
Key Violations:
- Supervisory Action Framework (SAF):
- Sanctioned loans exceeding eligible single borrower exposure limits.
- Issued loans with risk weights over 100%.
- Offered deposit interest rates higher than permissible limits.
- Capital Adequacy Norms:
- Refunded share capital to members despite CRAR being below the required 9%.
- Breached share-linking norms for jewel loans.
This penalty was imposed after thorough review of the bank’s responses to RBI notices and oral submissions during a hearing.
2. Maxvalue Credits and Investments Limited, Kerala
Penalty: ₹4,50,000
Key Violations:
- Changed shareholding beyond 26% of paid-up equity without prior RBI approval.
- Redeemed subordinated debts without RBI consent.
- Accessed public deposits as a non-deposit taking NBFC.
- Failed to include mandated disclosures in its Annual Financial Statements.
These findings were based on the inspection of the company’s financial position as of March 31, 2021 and subsequent supervisory observations.
3. The Kanara District Central Co-operative Bank Ltd., Karnataka
Penalty: ₹1,00,000
Key Violation:
- Sanctioned loans to directors and entities in which directors had vested interests, in violation of Section 20 read with Section 56 of the Banking Regulation Act.
This penalty followed NABARD’s inspection of the bank’s financial position as of March 31, 2023 and related findings.
4. The Raichur District Central Co-operative Bank Ltd., Karnataka
Penalty: ₹50,000
Key Violation:
- Sanctioned loans to its directors, breaching Section 20 read with Section 56 of the Banking Regulation Act.
The statutory inspection, conducted by NABARD with reference to the bank’s financial position as of March 31, 2023, revealed the contravention. After considering the bank’s reply and personal hearing submissions, the RBI determined the penalty was warranted.
RBI’s Stand
The RBI emphasized that these penalties address regulatory breaches and do not impact customer agreements or transactions. Further actions may be initiated if needed.
Conclusion
These penalties serve as a critical reminder for financial institutions to prioritize compliance with regulatory frameworks. The RBI’s actions highlight the importance of maintaining robust internal controls, adhering to statutory guidelines, and ensuring transparency in operations. Institutions should proactively review their policies, train their personnel on regulatory requirements, and implement effective monitoring mechanisms to avoid such lapses.
By learning from these cases, financial entities can strengthen their governance structures and contribute to the overall stability and trust in the banking and financial ecosystem. Staying vigilant and compliant is not just a regulatory obligation but a fundamental step toward long-term success and customer confidence.
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