RBI mulls new penalty framework for banks: Report

The Reserve Bank of India (RBI) is considering a comprehensive review of its penalty system, Business Standard reported citing a senior regulatory source. The potential changes might involve increasing the penalty amounts, this could be in accordance with the size of the regulated entities, their importance to the system, and the number of repeat offences, it added.

Additionally, the review may explore clawback of payouts to CEOs and key management personnel (KMP), it said. This aspect, in particular, could hit state-run banks, whose compensation packages have already been under debate when considered against those offered by private banks.

There is also speculation about the possibility of imposing additional capital charges on regulated entities, as per the report.

The initiative comes as the apex bank looks to enhance corporate governance standards within regulated entities and emphasize its importance, it added.

In a meeting with the boards of state-run and private banks in May, RBI Governor Shaktikanta Das discussed governance issues, ethics, the role of boards, and supervisory expectations. This is being viewed as an extension of that focus.

Recent penalties imposed

On November 16, the RBI imposed a monetary penalty of ₹90.92 lakh on Axis Bank for non-compliance with certain directions issued by the apex bank on ‘Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016’, ‘Loans and Advances – Statutory and Other Restrictions’, ‘Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks’ and ‘Code of Conduct for Opening and Operating Current Accounts’.

The Reserve Bank said after examination of the Risk Assessment Report/Inspection Report pertaining to ISE 2022, Scrutiny Report, and all related correspondence in that regard, it observed that the Axis Bank failed to preserve records pertaining to the identification of customers and their address in certain cases, and made persistent calls to some of the customers.

On the same day, monetary penalties were also imposed on Manappuram Finance and Anand Rathi Global Finance for deficiencies in regulatory compliance.

The banking regulator in a release said it has imposed a monetary penalty of ₹42.78 lakh on Manappuram Finance, Thrissur for non-compliance with certain provisions of the “Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016".

Separately, the RBI also imposed a monetary penalty of ₹20 lakh on Anand Rathi Global Finance Limited, Mumbai, for non-compliance with certain provisions of the Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016.

On November 6, the country's apex bank imposed monetary penalties on four cooperative banks and a non-banking financial company (NBFC) for deficiencies in regulatory compliance.

The co-operative banks are: Shree Lodra Nagarik Sahakari Bank Ltd, Malpur Nagarik Sahakari Bank Ltd, Jolarpet Co-operative Urban Bank Ltd, Limbasi Urban Co-operative Bank and the NBFC is Early Salary Services Private Ltd.

RBI said its actions were based on deficiencies in regulatory compliance and were not intended to pronounce upon the validity of any transaction or agreement entered into by the banks or the NBFC with its customers.

Even the largest public sector lender has not been immune. Earlier this year, penalties were imposed on the State Bank of India (SBI), Indian Bank, and Punjab and Sindh Bank.

It imposed a monetary penalty of ₹1.30 crore on SBI for non-compliance with certain directions issued by RBI on ‘Loans and Advances – Statutory and Other Restrictions’ and ‘Guidelines on Management of Intra-Group Transactions and Exposures’.