Penalties imposed by RBI on various banks on 14 August 2023.

The Reserve Bank of India (RBI) has issued an order dated August 07, 2023, imposing a monetary penalty of ₹5.00 lakh (Rupees Five Lakh only) on Baroda Gujarat Gramin Bank, Vadodara (Gujarat). The penalty stems from the bank’s failure to adhere to the guidelines provided by NABARD on ‘Frauds – Guidelines for Classification, Reporting and Monitoring of Frauds’. These penalties have been enforced using as per Sections 47 A (1) (c) along with Sections 46 (4) (i) and 51 of the powers vested in the RBI of the Banking Regulation Act.

RBI made it clear that this action has been taken due to regulatory compliance shortcomings and should not be interpreted as a judgment on the validity of any transactions or agreements between the bank and its customers.

Details of Penalties imposed by RBI:

Following a statutory inspection conducted by NABARD with respect to the bank’s financial status as of March 31, 2021, the subsequent Inspection Report and associated correspondence revealed instances where the bank failed to promptly report five cases of fraud to NABARD, thereby violating the prescribed timeline. This failure led to a breach of the aforementioned NABARD guidelines. Subsequently, a notice was sent to the bank, prompting them to provide reasons why a penalty should not be imposed for their non-compliance with the given directions.

Upon reviewing the bank’s response to the notice and considering oral submissions made during the personal hearing, the RBI concluded that the allegation of non-compliance with NABARD directions was well-founded, warranting the imposition of a monetary penalty.

Other Banks on which the penalties have been issued.

In a similar manner, the RBI has issued penalties on following banks:

1. The Nabapalli Co-operative Bank Ltd., West Bengal has been penalized with ₹2,50,000/- (Rupees Two Lakh Fifty Thousand only) for failing to comply with the directions issued by RBI on ‘Exposure Norms and Statutory/Other Restrictions – UCBs’, along with certain provisions of the ‘Reserve Bank of India – (Know Your Customer (KYC)) Direction, 2016’.

2. Bally Cooperative Bank Ltd., Howrah, West Bengal has been fined ₹1,00,000/- (Rupees One Lakh only) for non-compliance with specific provisions of the ‘Reserve Bank of India – (Know Your Customer (KYC)) Direction, 2016’.

3. The Aska Co-operative Central Bank Ltd., Aska has incurred a penalty of ₹50,000/- (Rupees Fifty Thousand only) for non-compliance with certain provisions of the ‘Reserve Bank of India – (Know Your Customer (KYC)) Direction, 2016′.

In each of these cases, the penalties were imposed by the RBI through its powers outlined in Section 47 A (1) (c), Sections 46 (4) (i), and Section 56 of the Banking Regulation Act, 1949. The penalties are based on identified deficiencies in regulatory compliance and should not be taken as a reflection on the legitimacy of the banks’ transactions or agreements with their customers.

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For more info: Refer RBI press release