RBI to Implement New Penalty Framework for Banks

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The Reserve Bank of India (RBI) is contemplating a comprehensive reassessment of its penalty framework, as reported by Business Standard, citing insights from a senior regulatory source. Possible alterations under consideration include potential increments in penalty amounts, aligning them with the scale of regulated entities, their systemic significance, and the recurrence of violations.

Furthermore, the review may delve into the prospect of clawing back remunerations from CEOs and key management personnel (KMP), with a potential impact on state-run banks. This becomes particularly pertinent amid ongoing discussions about the compensation packages of state-run banks vis-à-vis those offered by private banks.

There is also speculation regarding the imposition of supplementary capital charges on regulated entities, according to the report.

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This initiative arises as the apex bank aims to elevate corporate governance standards within regulated entities, underscoring its significance.

In a meeting with the boards of state-run and private banks in May, RBI Governor Shaktikanta Das addressed governance issues, ethics, the role of boards, and supervisory expectations, seen as an extension of that focus.

On November 16, the RBI levied a monetary penalty of ₹90.92 lakh on Axis Bank for non-compliance with specific directives on ‘Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016,’ ‘Loans and Advances – Statutory and Other Restrictions,’ ‘Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks,’ and ‘Code of Conduct for Opening and Operating Current Accounts.’

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The Reserve Bank noted that, following an examination of various reports, Axis Bank failed to maintain records related to customer identification and addresses in certain cases, and engaged in persistent calls to some customers.

On the same day, monetary penalties were imposed on Manappuram Finance and Anand Rathi Global Finance for lapses in regulatory compliance.

The RBI, in a statement, disclosed a monetary penalty of ₹42.78 lakh on Manappuram Finance, Thrissur, for non-compliance with provisions of the “Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.”

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Additionally, the RBI imposed a monetary penalty of ₹20 lakh on Anand Rathi Global Finance Limited, Mumbai, for non-compliance with specific provisions of the Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016.

On November 6, the apex bank imposed monetary penalties on four cooperative banks and a non-banking financial company (NBFC) for deficiencies in regulatory compliance.

The co-operative banks include Shree Lodra Nagarik Sahakari Bank Ltd, Malpur Nagarik Sahakari Bank Ltd, Jolarpet Co-operative Urban Bank Ltd, Limbasi Urban Co-operative Bank, and the NBFC is Early Salary Services Private Ltd.

The RBI clarified that its actions were rooted in identified deficiencies in regulatory compliance and were not intended to pass judgment on the validity of transactions or agreements entered into by the banks or the NBFC with its customers.

Even the largest public sector lender has not escaped scrutiny. Earlier this year, penalties were imposed on the State Bank of India (SBI), Indian Bank, and Punjab and Sindh Bank, with a monetary penalty of ₹1.30 crore imposed on SBI for non-compliance with specific RBI directives on ‘Loans and Advances – Statutory and Other Restrictions’ and ‘Guidelines on Management of Intra-Group Transactions and Exposures.’

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