The Reserve Bank of India (RBI) has imposed a penalty of ₹1.63 crore on Canara Bank due to lapses in compliance with critical guidelines. This move highlights the importance of adhering to RBI regulations, designed to ensure smooth banking operations and customer trust.
What Led to the Penalty?
Following its Statutory Inspection for Supervisory Evaluation (ISE 2023), RBI found Canara Bank in breach of specific regulations. The violations pertain to:
- Priority Sector Lending (PSL):
The bank charged loan-related fees for certain priority sector loans up to ₹25,000. Such loans are aimed at empowering weaker sections of society, and additional fees go against the purpose of PSL. - Interest on Savings Accounts:
It was observed that the bank did not pay interest on some savings bank deposit accounts, a direct violation of customer-centric banking norms. - Financial Inclusion and BSBDA Guidelines:
Canara Bank maintained both regular Savings Bank Deposit (SB) accounts and Basic Savings Bank Deposit (BSBD) accounts for the same customers. This duplication contradicts the RBI’s financial inclusion framework, which aims to simplify banking for underserved sections.
RBI’s Evaluation Process
The irregularities were flagged during the inspection, conducted with reference to Canara Bank’s financial position as of March 31, 2023. A notice was issued to the bank, requiring it to explain why a penalty should not be imposed. After reviewing the bank’s responses, including written and oral submissions, RBI concluded that these violations merited a monetary penalty under the Banking Regulation Act, 1949.
Impact of the Penalty
The penalty underscores the significance of compliance in India’s banking sector. While this action addresses deficiencies in adhering to regulatory standards, RBI clarified that it does not invalidate any customer agreements or transactions carried out by the bank.
Key Takeaways for Banks
This enforcement action serves as a reminder to all banks to align their practices with RBI’s directives to avoid financial penalties and safeguard their reputation.
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