RBI Fines Federal Bank & Karur Vysya Bank for Rule Violations

The Reserve Bank of India (RBI) has imposed monetary penalties on Federal Bank Ltd and Karur Vysya Bank Ltd for non-compliance with regulatory guidelines. Federal Bank has been fined ₹27.30 lakh, while Karur Vysya Bank faces a penalty of ₹8.30 lakh. This action follows RBI’s routine inspections, which identified violations in account management and credit delivery systems. These penalties highlight RBI’s firm stance on maintaining strict banking compliance.

Why Did RBI Penalize Federal Bank?

During a recent statutory inspection, RBI found that Federal Bank had opened savings deposit accounts in the names of entities that were not eligible. This violated RBI’s directives regarding interest rates on deposits. As a result, the central bank imposed a penalty of ₹27.30 lakh on Federal Bank. The violation indicates lapses in due diligence and adherence to RBI’s deposit-related norms.

What Led to Karur Vysya Bank’s Penalty?

Karur Vysya Bank faced regulatory action for failing to comply with RBI’s guidelines on credit delivery. The bank did not ensure that the outstanding loan amounts of some borrowers met the required percentage of the sanctioned working capital limit. This breach of credit management rules led to a penalty of ₹8.30 lakh. Such non-compliance affects financial discipline and risk management, prompting RBI’s intervention.

How Does This Relate to RBI’s Past Actions?

This is not the first time RBI has taken action against these banks. In November 2023, Federal Bank was fined ₹30 lakh for violating Know Your Customer (KYC) norms by issuing demand drafts of ₹50,000 and above without recording the purchaser’s name. Similarly, in March 2023, Karur Vysya Bank was penalized ₹30 lakh for failing to report certain accounts as fraud within the required timeframe, as per RBI’s fraud classification guidelines.

RBI’s Stand on Compliance

The RBI clarified that these penalties are based solely on regulatory lapses and do not affect customer transactions or agreements. The central bank continues to enforce strict compliance measures to ensure financial discipline among banks. By penalizing non-compliant institutions, RBI reinforces its commitment to maintaining transparency and accountability in the banking sector.

Summary of the news