RBI Penalizes Banks and NBFC for Regulatory Violations

The Reserve Bank of India (RBI) has recently taken stringent measures by imposing monetary penalties on a range of financial institutions, including private and public sector banks, a Small Finance Bank, and a Non-Banking Financial Company (NBFC), due to non-compliance with regulatory standards. Notably, a significant penalty was levied on a private sector bank in Kerala, highlighting multiple deficiencies in regulatory compliance. The bank's lapses included sanctioning loans for non-agricultural purposes against pledged gold ornaments, surpassing the stipulated limit, misapplying interest rates on senior citizen term deposits, and failing to obtain PAN or Form 60 for specific term deposit accounts.

In addition to the private sector bank, a public sector bank in New Delhi faced penalties for diverting funds intended for specific projects without conducting essential due diligence. The lack of assessment of project viability and bankability raised concerns about the adequacy of revenue streams for debt servicing obligations.

A Small Finance Bank also faced penalties for allowing certain Basic Savings Bank Deposit (BSBD) account holders to open regular savings bank deposit accounts and failing to close specific savings bank deposit accounts within 30 days of opening BSBD accounts for such customers.

Furthermore, a southern-based NBFC incurred penalties for neglecting risk categorization of customers and failing to perform periodic updates of Know Your Customer (KYC) information for high-risk customers as part of ongoing due diligence.

These penalties underscore the RBI's commitment to upholding the integrity and security of the financial system by enforcing compliance with established norms and practices, emphasizing the importance of adherence to regulatory guidelines across diverse financial institutions.