RBI imposes Rs. 2.5 crore penalty on three banks

The Reserve Bank of India (RBI) imposed a monetary penalty on three private and public sector lenders on Friday. The central bank charged Jammu & Kashmir Bank with Rs.2.5 crore penalty, while the Bank of Maharashtra faced a fine of Rs.1.45 crore. Axis Bank received the least amount of penalty among them to the tune of Rs.30 lakh.

Jammu & Kashmir Bank:

RBI imposed a Rs.2.5 crore penalty on J&K Bank for non-compliance with certain directions issued by RBI on ‘Creation of a Central Repository of Large Common Exposures-Across Banks’, read with ‘Central Repository of Information on Large Credits (CRILC) – Revision in Reporting’, ‘Loans and Advances – Statutory and other Restrictions’ and ‘Time-bound implementation and strengthening of SWIFT-related operational controls’.

According to RBI's inspection, J&K Bank non-complied in --- (i) failed to ensure integrity and quality of data submitted to CRILC, (ii) extended term loans to a corporation (a) without undertaking due diligence on the viability and bankability of the projects to ensure that revenue streams from the projects are sufficient to take care of the debt servicing obligations and (b) failing to ensure that the repayment/servicing of said term loans were not made out of budgetary resources and (iii) created financial/non-financial messages in SWIFT without first ensuring that the underlying transactions have been duly reflected in the CBS.

Bank of Maharashtra:

This government-owned bank was imposed with Rs.1.45 crore penalty for non-compliance with certain directions issued by RBI on ‘Loans and Advances – Statutory and Other Restrictions’ and Advisory on ‘Man in the Middle (MiTM) Attacks in ATMs’ (the Advisory).

BoM committed non-compliance in the extent of --- (1) it sanctioned a term loan to a Corporation (i) in lieu of or to substitute budgetary resources envisaged for certain projects; (ii) without undertaking due diligence on the viability and bankability of the projects to ensure that revenue streams from the projects were sufficient to take care of the debt servicing obligations; and (iii) the repayment/servicing of which was made out of budgetary resources, and (2) it failed to implement required control measures for ATMs relating to end-to-end encryption of communication between the ATM terminal/PC and the ATM Switch, within the prescribed timeline.

Axis Bank:

Axis Bank, one of the leading private sector lenders, was penalised with Rs.30 lakh due to its non-compliance with certain provisions of the RBI directions on ‘Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances – Credit Card Accounts’.

As per RBI's inspection, Axis Bank had levied penal charges in certain accounts for late payment of credit card dues though the customers had paid the dues by the due date, through third party platforms.

Notably, before imposing the charges, RBI had sent notices to these three banks --- advising them to show cause as to why a penalty should not be imposed on them for failure to comply with the directions issued.

After considering the banks' reply to the notice, RBI came to the conclusion that the charge of non-compliance with the aforesaid RBI directions was substantiated and warranted the imposition of monetary penalty on these banks.