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RBI Imposes ₹2.5 Crore Penalty On L&T Finance For Non Compliance

 

The Reserve Bank of India (RBI) has recently taken regulatory action against L&T Finance Limited by imposing a monetary penalty of ₹2.50 crore (Rupees Two crore Fifty lakh only) on the company. This decision comes in the wake of a statutory inspection of L&T Finance Limited, which covered its financial position as of March 31, 2021, and March 31, 2022.

RBI’s Action Against L&T Finance for Non-Compliance

According to a press release issued by the RBI, this penalty has been levied due to non-compliance with specific provisions of the Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.

Background of the RBI’s Decision

The RBI’s decision to impose a monetary penalty on L&T Finance Limited follows a comprehensive statutory inspection that assessed the company’s financial position as of two key dates, March 31, 2021, and March 31, 2022. This inspection included an examination of various reports and correspondence related to the company’s operations.

Identified Deficiencies in Compliance

During the statutory inspection, several deficiencies in compliance were identified by the RBI. These issues pertained to the company’s practices in dealing with its retail borrowers. Some of the key deficiencies included:

Failure to Inform Retail Borrowers: L&T Finance Limited failed to inform its retail borrowers about the risk gradation and the rationale behind different interest rates applied to various borrower categories in loan application forms or sanction letters.

Lack of Notification for Changes in Penal Interest Rates: The company did not notify borrowers when there were changes in penal interest rates, especially when these rates were higher than initially communicated.

Non-Disclosure of Changes in Loan Terms and Conditions: The company failed to provide notice of changes in loan terms and conditions when charging an annualized interest rate higher than what was communicated at the time of sanction.

RBI’s Notice to L&T Finance Limited

In response to the identified deficiencies, the RBI issued a notice to L&T Finance Limited. This notice requested the company to provide reasons why a penalty should not be imposed for non-compliance with the RBI directions. The notice initiated a process for L&T Finance Limited to provide explanations and defenses against the alleged non-compliance.

Evaluation of Company’s Response

L&T Finance Limited responded to the RBI’s notice, providing explanations and defenses against the alleged non-compliance. The RBI meticulously evaluated the company’s response, along with additional submissions and oral statements made during a personal hearing.

Monetary Penalty Imposed

After careful consideration of the company’s response and evidence presented, the RBI determined that there was a substantiated charge of non-compliance with the RBI directions. Therefore, the imposition of a monetary penalty of ₹2.50 crore was deemed appropriate to address this non-compliance.

Regulatory Action Clarification: Focusing on Compliance and Customer Fairness

It is crucial to note that this regulatory action is primarily focused on addressing deficiencies in compliance and should not be construed as a judgment on the validity of any transactions or agreements between L&T Finance Limited and its customers. The RBI’s objective is to ensure that financial institutions adhere to the prescribed guidelines and directions, maintaining transparency and fairness in their dealings with customers.

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