Why RBI imposed huge penalty on SBI and 13 other banks

The Reserve Bank of India (RBI) has imposed penalty on 14 banks including State Bank of India (SBI), Bank of Baroda and Bandhan Bank for non-compliance of various lending norms. RBI found that these lenders were non-compliant with certain provisions of directions that the regulator had issued on lending to Non-Banking Financial Companies (NBFCs).

“The Reserve Bank of India (RBI) has imposed monetary penalty on fourteen banks, as detailed below, for non-compliance with certain provisions of directions issued by RBI on ‘Lending to Non-Banking Financial Companies (NBFCs)’, ‘Bank Finance to Non-Banking Financial Companies (NBFCs)’, ‘Loans and Advances – Statutory and Other Restrictions’, ‘Creation of a Central Repository of Large Common Exposures – Across Banks’ read with the contents of Circular on ‘Reporting to Central Repository of Information on Large Credits (CRILC)’, ‘Operating Guidelines for Small Finance Banks’” the circular read.

In view of this, RBI levied a penalty of Rs 2 crore on Bank of Baroda. For Central Bank of India, IndusInd Bank, Credit Suisse AG, Bandhan Bank, Indian Bank, Bank of Maharashtra, Utkarsh Small Finance Bank, Karur Vysya Bank, Karnataka Bank, South Indian Bank, Punjab and Sind Bank, and Jammu & Kashmir Bank, the regulator has levied a fine of Rs 1 crore. State Bank of India, on the other hand will have to pay a penalty of Rs 50 lakh.

Amount of penalty (₹ in crore)

Bandhan Bank Ltd. 1.0
Bank of Baroda 2.0
Bank of Maharashtra 1.0
Central Bank of India 1.0
Credit Suisse AG 1.0
Indian Bank 1.0
IndusInd Bank Ltd. 1.0
Karnataka Bank Ltd. 1.0
Karur Vysya Bank Ltd. 1.0
Punjab and Sind Bank 1.0
South Indian Bank Ltd. 1.0
State Bank of India 0.50
The Jammu & Kashmir Bank Ltd. 1.0
Utkarsh Small Finance Bank Ltd. 1.0

“A scrutiny in the accounts of the companies of a Group was carried out by RBI and it was observed that the banks had failed to comply with provisions of one or more of the aforesaid directions issued by RBI and/or contravened provisions of the Banking Regulation Act, 1949,” RBI said in a statement. The regulator said it had issued notices to these banks seeking show cause as to why RBI should not impose penalty on them for non-compliance.

After examining the replies received from the banks along with oral submissions made in the personal hearings, RBI concluded the imposition of monetary penalty on these banks.

“The penalties have been imposed in exercise of powers vested in RBI under the provisions of section 47 A (1) (c) read with sections 46 (4) (i) and 51 (1), of the Banking Regulation Act, 1949, as applicable. This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers,” RBI added.