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RBI fines Sarvodaya Co-operative Bank 2 lakh for KYC norms violation

RBI has clarified that the action against Sarvodaya Co-operative Bank is based on regulatory non-compliance and does not refer to its transaction or agreement with customers. (REUTERS)Premium
RBI has clarified that the action against Sarvodaya Co-operative Bank is based on regulatory non-compliance and does not refer to its transaction or agreement with customers. (REUTERS)

RBI said investigation into Sarvodaya Co-operative Bank based on its financial position as on March 31, 2019, revealed that the bank had not put in place the system of periodic review of risk categorisation of accounts

Reserve Bank of India (RBI) has imposed a fine of 2 lakh on Mumbai-based Sarvodaya Co-operative Bank for violation of know your customer (KYC) regulations.

“The Reserve Bank of India has imposed, by an order dated September 06, 2021, a monetary penalty of 2.00 lakh on Sarvodaya Cooperative Bank Ltd., Bhandup (W), Mumbai (the bank) for contravention of/noncompliance with directions issued by RBI on Know Your Customers (KYC)," the banking regulator said in a statement on Tuesday.

The central bank said that investigation into the bank based on its financial position as on March 31, 2019, revealed that the bank had not put in place the system of periodic review of risk categorisation of accounts.

RBI has mandated in its KYC regulations that banks should classify customers as low, medium and high risk category, based on the assessment and risk perception of the lender. 

Risk categorisation shall be undertaken based on parameters such as customer’s identity, social and financial status, nature of business activity, and information about the customer’s business and their location, etc. While considering customer’s identity, the ability to confirm identity documents through online or other services offered by issuing authorities may also be factored in.

RBI master direction on KYC also calls for periodic updation of KYC details.

Based on the same, a notice was issued to Sarvodaya Co-operative Bank, advising it to show cause as to why penalty should not be imposed for noncompliance with the aforesaid directions, RBI stated .

“After considering the bank’s reply to the Notice, RBI came to the conclusion that the aforesaid charge of non-compliance with RBI directions was substantiated and warranted imposition of monetary penalty," the central bank added.

RBI said that that the action was taken 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.

It further clarified that the action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

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