Mumbai: Banks in India seem to have become more compliant with regulatory norms in FY26, with the quantum of penalties imposed by the central bank declining by about 37% over the previous financial year, data compiled by Mint showed.
The Reserve Bank of India imposed monetary penalties of ₹19.8 crore on commercial banks in FY26, as against ₹31.4 crore in FY25, even as the number of penalties remained unchanged at 35. The data is based on fines announced on the RBI website.
The most common violations included failure to comply with KYC (know your customer) norms, not categorizing customers on the basis of risk, allotting multiple customer IDs instead of a unique one, and not transferring unclaimed deposits to the Depositor Education and Awareness Fund.
While the failure to transfer unclaimed deposits and categorize risks point to negligence, other violations—such as sanctioning loans with a director's relative as guarantor and declaring dividends without prior RBI permission—raise more serious concerns.
The decline in the RBI’s monetary penalties on commercial banks indicates continuous improvement in regulatory compliance outcomes over the years, said Saurabh Bhalerao, associate director of banking, financial services and insurance (BFSI) at CareEdge Ratings.
“Over the years, based on feedback and market practices, there is better understanding among the regulated entities of the specific actions to be taken to be able to meet the regulatory requirements. Hence, we can see declining penal action by regulators on the entities and, save an idiosyncratic event here and there, on an overall basis, this trend is likely to continue,” said Bhalerao.
No financial sting
Prominent lenders including HDFC Bank, ICICI Bank, Axis Bank and IDFC First Bank were fined in both financial years. However, the financial sting of RBI penalties is limited for large banks. The single largest fine on a commercial bank was less than ₹3.3 crore—Jammu & Kashmir Bank in January 2025—a fraction of the lender’s quarterly profit.
Experts said the absolute size of such penalties is generally financially immaterial. Yet, bank boards tend to take RBI penalties quite seriously—another reason why even a small fine works towards better compliance.
“...irrespective of the size of the penalty, any such occurrence is viewed negatively by market participants. Additionally, the deterrent also lies in secondary consequences, including heightened supervisory scrutiny, increased board and senior management engagement, reduced regulatory tolerance for future lapses, and the potential for operational constraints or business restrictions,” said Bhalerao.
Legal experts said the Banking Regulation Act is silent when it comes to treatment of repeat violations by a bank. Every violation is penalized independently under its provisions.
“The BR Act does not treat repeat or frequent offences differently merely on account of a bank having committed a similar violation in the past, and therefore, repeat violations are not automatically transformed into a distinct or enhanced offence,” said Manisha Shroff, a partner at law firm Khaitan & Co.
Shroff said treatment of a repeat violation by a bank or regulated entity varies, depending on the provision or regulation under which it was penalized.
“Repeat violations are penalized independently in law but are capable of attracting enhanced regulatory treatment in practice, especially under frameworks that expressly take compliance history into account,” Shroff said.