In a bid to strengthen corporate governance practices within the Indian financial sector, the Reserve Bank of India (RBI) is considering a comprehensive revamp of its sanction system. The proposed changes entail a tiered penalty structure that would factor in the size, significance, and frequency of violations, potentially leading to higher fines for larger and more prominent entities.
This move aligns with the RBI’s broader objective of aligning penalties with the systemic importance of financial institutions and comes on the heels of recent regulatory non-compliance cases that have resulted in monetary penalties for several banks.
The RBI’s renewed emphasis on corporate governance was evident earlier this year when Governor Shaktikanta Das convened discussions with bank boards in May. These discussions highlighted the need for enhanced ethical standards and strengthened supervisory roles within the banking sector. In recent weeks, the RBI has imposed multiple monetary penalties on financial institutions for regulatory lapses.
On November 15, Axis Bank was fined ₹90.92 lakh for violations of Know Your Customer (KYC) Directions and financial service outsourcing norms identified during evaluations in 2022. Similarly, Manappuram Finance and Anand Rathi Global Finance were also fined for non-compliance with specific directives and KYC discrepancies on November 16.
Earlier in November, four cooperative banks and Early Salary Services Private Ltd. were penalized for failing to adhere to regulatory requirements. Furthermore, earlier this year, the State Bank of India faced a significant penalty amounting to ₹1.30 crore (approx. $155,942) for non-compliance with prescribed norms on loans and group transactions management.
The RBI’s proposed measures also include exploring clawbacks for payouts to executives at government banks and introducing additional capital charge proposals for regulated institutions. These measures aim to hold top executives accountable and reinforce the importance of stringent regulatory compliance within the banking sector.