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Home >Industry >Banking >RBI fines Bombay Mercantile Co-operative Bank 50 lakh for regulatory incompliance

Reserve Bank of India (RBI) has imposed a monetary penalty of 50 lakh on Mumbai-based Bombay Mercantile Co-operative Bank. The central bank clarified that the action is based on deficiency in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the co-operative bank with its customers.

The fine was issued in light of non-compliance with directions related to interest rates issued by RBI contained in in the Reserve Bank of India (Co-operative Banks - Interest Rate on Deposits) Directions, 2016 and specific directions dated March 05, 2018 and April 11, 2018 issued by RBI under the Supervisory Action Framework (SAF), the apex bank said in a statement on Friday.

This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47 A (1) (c) read with Section 46 (4) (i) and Section 56 of the Banking Regulation Act, 1949, taking into account failure of the bank to adhere to the prescribed directions, it further added.

The RBI conducted a statutory inspection of the bank’s financial position on March 31, 2019. The investigation and related correspondence revealed, among other things, that the Bombay Mercantile Co-operative Bank had offered interest rates on NRE deposits higher than those offered by it on comparable domestic rupee term deposits and had sanctioned unsecured advances.

This amounts to non-compliance with directions issued by RBI in this regard. The banking regulator subsequently issued a notice to the coo-operative bank, advising it to show cause as to why penalty should not be imposed for contravention of the directions issued by RBI.

“After considering the bank’s reply to the notice and oral submissions made in the personal hearing, RBI came to the conclusion that the aforesaid charge of non-compliance with RBI directions was substantiated and warranted imposition of monetary penalty," RBI stated.

In a different action, the RBI imposed a monetary penalty of 2 lakh on The Akola District Central Co-operative Bank Limited, based in Akola, Maharashtra. The fine came on the back of non-compliance with certain know your customer (KYC) norms.

This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47 A (1) (c) read with Section 46 (4) (i) and Section 56 of the Banking Regulation Act, 1949, taking into account the failure of the bank to adhere to the aforesaid directions issued by RBI.

“The inspection report of the bank based on its financial position as on March 31, 2019 and the Inspection Report pertaining thereto revealed, inter alia, that the bank had failed to put in place a robust system for throwing alerts as part of effective identification and monitoring of suspicious transactions, resulting in non-compliance with directions issued by RBI," the central bank said.

After considering the bank's replies to show cause notices and oral submissions made during the personal hearing, RBI ruled that the lender was in violation of the KYC regulations.

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