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.
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.
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.
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.
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.
| Topic | Details |
|---|---|
| Why in News? | RBI imposed a total penalty of ₹35.60 lakh on Federal Bank (₹27.30 lakh) and Karur Vysya Bank (₹8.30 lakh) for regulatory non-compliance. Federal Bank violated deposit rules by opening savings accounts for ineligible entities, while Karur Vysya Bank failed to meet loan compliance norms. |
| Federal Bank Violation | Opened savings accounts for ineligible entities, violating RBI’s deposit guidelines. |
| Karur Vysya Bank Violation | Failed to ensure loan amounts met required credit limits, violating RBI’s loan compliance rules. |
| Past Penalties | November 2023: ₹30 lakh fine on Federal Bank for KYC violations. March 2023: ₹30 lakh fine on Karur Vysya Bank for delay in fraud reporting. |
| Regulatory Authority | Reserve Bank of India (RBI) |
| Federal Bank HQ | Aluva, Kerala |
| Karur Vysya Bank HQ | Karur, Tamil Nadu |
| RBI Governor | Shaktikanta Das |
| Federal Bank CEO | Shyam Srinivasan |
| Karur Vysya Bank CEO | Ramesh Babu Boddu |
| Kerala CM & Capital | CM: Pinarayi Vijayan Capital: Thiruvananthapuram |
| Tamil Nadu CM & Capital | CM: M.K. Stalin Capital: Chennai |
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