RBI Imposes ₹1.62 Crore Penalty on Indian Bank for Regulatory Non-Compliance

The Reserve Bank of India (RBI) has, as of September 21, 2023, imposed a monetary penalty of ₹1.62 crore on Indian Bank for not adhering to specific directives issued by the RBI. These directives pertained to ‘Loans and Advances – Statutory and Other Restrictions,’ ‘Reserve Bank of India [Know Your Customer (KYC)] Directions, 2016,’ and ‘Reserve Bank of India (Interest Rate on Deposits) Directions, 2016.’ This penalty is in accordance with the powers vested in the RBI under Sections 47 A (1) (c), 46 (4) (i), and 51(1) of the Banking Regulation Act, 1949.

It’s essential to note that this action is taken due to regulatory compliance shortcomings and does not question the validity of any transactions or agreements between the bank and its customers.

Background: The RBI conducted a Statutory Inspection for Supervisory Evaluation (ISE 2021) of the bank, considering its financial position as of March 31, 2021. The examination of the Risk Assessment Report/Inspection Report related to ISE 2021 and associated correspondence revealed several instances of non-compliance by the bank, including:

1. Sanctioning a term loan to a corporation:
   • Without proper due diligence on project viability and bankability.
   • With repayment from budgetary resources, not project revenue.
2. Allowing open accounts using OTP-based e-KYC without conducting customer due diligence for over a year.
3. Opening savings accounts for customers who were not eligible for such accounts.

Following this discovery, the RBI issued a notice to the bank, asking for an explanation as to why a penalty should not be imposed. After considering the bank’s response and oral submissions during a personal hearing, the RBI concluded that the bank’s non-compliance with the aforementioned directives warranted the imposition of a monetary penalty.