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The Reserve Bank of India (RBI) has imposed a monetary penalty on two Mumbai-based cooperative banks. RBI has taken a monetary action of 1.25 crore on Zoroastrian Co-operative Bank, Bombay, for non-compliance with RBI directions on 'Discounting of Bills by UCBs - Restricted Letters of Credit' and the provisions of the Co-operative Banks Rules, 1985. Whereas, on the other hand, RBI has imposed a monetary penalty of 50.00 lakh on Bharat Co-operative Bank (Mumbai) for non-compliance with the directions issued by RBI on ‘Income Recognition, Asset Classification, Provisioning and Other Related Matters’ (IRAC norms).

The monetary action against the Zoroastrian Co-operative Bank, according to the RBI, has been carried out in accordance with the power given to it by sections 46(4)(i), 56, and 47A(1)(c) of the BR Act. RBI has said in a statement on Monday evening that “This 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 bank with its customers."

RBI said in a statement that the statutory inspection of Zoroastrian Co-operative Bank conducted by it with reference to its financial position as on March 31, 2020, and examination of the Risk Assessment Report pertaining thereto, Forensic Audit Report (FAR) by an external auditor and all related correspondence in the matter revealed, inter alia, that the bank had failed to comply with RBI directions on ‘Discounting of Bills by UCBs – Restricted Letters of Credit (LC)’ and the provisions of the Rules, as it discounted accommodation bills under LCs without establishing the genuineness of underlying transactions / documents and failed to preserve records in good order for a period of eight years. In furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed for non-compliance with the directions/Rules, as stated therein by the central bank.

After considering the bank’s reply to the notice, additional submissions made by it and oral submissions made during the personal hearing, RBI said it came to the conclusion that the charge of non-compliance with the aforesaid directions/Rules was substantiated and warranted imposition of monetary penalty, to the extent of non-compliance with such directions/Rules.

The monetary action against the Bharat Co-operative Bank, according to RBI, has been carried out for non-compliance with the directions issued by the central bank on ‘Income Recognition, Asset Classification, Provisioning and Other Related Matters’ (IRAC norms). This penalty has been imposed in exercise of powers vested in RBI conferred under section 47A(1)(c) read with sections 46(4)(i) and 56 of Banking Regulation Act, 1949 (BR Act).

Owing to the background of a monetary penalty imposed on Bharat Co-operative Bank, RBI has said in a statement that the statutory inspection of the bank conducted by it with reference to its financial position as on March 31, 2020, and examination of the Risk Assessment Report, Inspection report and all related correspondence pertaining to the same, revealed, inter alia, that the bank did not classify certain accounts as non-performing assets in accordance with the IRAC norms. 

In furtherance to the same, a notice was issued to the bank advising it to show cause as to why a penalty should not be imposed for contravention of the central bank directions, as stated therein. After considering the Bharat Co-operative Bank’s reply to the notice, additional submissions made by it and the oral submissions made during the personal hearing, RBI said it came to the conclusion that the charge of non-compliance with the aforesaid directions was substantiated and warranted imposition of monetary penalty.

RBI has also made public that by an order dated November 24, 2022, it has imposed a monetary penalty of 20.00 lakh on Indian Mercantile Co-operative Bank Ltd., Lucknow, Uttar Pradesh for non-compliance with the directions issued on ‘Income Recognition, Asset Classification, Provisioning and Other Related Matters’ (IRAC norms).

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