A STUDY ON PENALTY IMPOSED BY RESERVE BANK OF INDIA ON MEMBER BANKS CRUX OF MY FINDINGS OF STUDY ON MAJOR NON-COMPLIANCE /VIOLATIONS/ DEVIATIONS IN RESPECT OF RBI GUIDELINES & BANKING REGULATION ACT (By- Parthasarathi Loganathan)

A STUDY ON PENALTY IMPOSED BY RESERVE BANK OF INDIA ON MEMBER BANKS CRUX OF MY FINDINGS OF STUDY ON MAJOR NON-COMPLIANCE /VIOLATIONS/ DEVIATIONS IN RESPECT OF RBI GUIDELINES & BANKING REGULATION ACT

 
Authored By- Parthasarathi Loganathan
 
As on date RBI under the provisions of Section 46 & 47 of the Banking Regulation Act, 1949, has imposed Rs.19496.01. Lakhs as penalty on account of various violations and non-compliance of Regulatory and Statutory guidelines by member banks and financial institutions over the last five years on 551 occasions. Date-wise extraction of penalties imposed on member banks is enclosed in the Annexure:

CALENDAR YEAR-WISE BREAK UP

 
YEAR
OCCASIONS
AMOUNT
2022
68
773.97
2021
170
5511.64
2020
44
1682.02
2019
154
4352.08
2018
73
5134.20
2017
42
2042.10
TOTAL
551
19496.01
 
SECTOR-WISE BREAK UP
 
BANKING SECTOR
PENALTY
OCCASIONS
Co-operative Sector Banks
2787.78
314
Foreign Banks
1211.00
15
Gold Loan Institutions
33.00
13
Nationalized Banks
4159.80
81
Payment & Settlement Banks
1300.00
9
Private Sector Banks
7607.50
65
Remittance Institutions
57.46
2
State Bank of India
1050.00
7
Non Banking Financial
Corporation(NBFCs)
 
1289.47
 
45
TOTAL
19496.01
551
(SOURCE : RBI-PRESS RELEASE DATA)
 

Findings On Major Non-Compliance/Violations

 
 
1.  Know Your Customer (KYC)
2.       Strengthening the controls of Payment Ecosystem between sponsored banks and Select Financial Institutions.
3.  Cyber Security Framework in Banks
4.  Sanctioning of loans to Directors/Entities in which they are interested
5.  Prohibiting Acceptance of Fresh Deposits
6.  Operational Guidelines on Depositor Education Awareness Fund Scheme
7.  Exposure Norms and Statutory and other restrictions for UCBs
8.  Supervisory Action Framework
9.  Information System Security Audit and Internal Audit Compliance.
10.  Management of Advances including Housing Finance
11.  Income Recognition, Asset Classification, Provisioning Interest Rate on Deposits.
12.      Frauds – classification, monitoring and reporting by commercial banks, UCBs, NBFCs and select FIs”
13.  Non Systemically important non-deposit taking company.
14.  Master Direction on Issuance and Operation of Prepaid Payment Instruments.
15.        ‘Customer Protection–Limiting Liability of Customers in Unauthorised Electronic Banking Transactions’.
16.  ‘Placement of Deposits with Other Banks by Primary (Urban) Co-operative Banks (UCBs).
 

CONCLUSION:

 
 
It is high time that Reserve Bank of India addresses the above violations and deviations/non-compliance by strengthening the technology framework in the banking industry within the extant statutory guidelines. Huge penalty amounts collected so far could be exclusively utilized to improve the existing Regulatory and Supervisory framework.
An Expert Committee is the need of the hour comprising of seasoned bankers, technocrats and lawyers to study and evaluate the Economic feasibility and technical viability and create a technological infrastructure so that all these critical violations and non-compliance are minimized and build up a robust banking industry for the future.
 

P. Loganathan               Advocate & Researcher

Ex-Banker