RBI Imposes Monetary Penalty On State Bank Of India, Indian Bank, Punjab & Sind Bank

In a recent development, the Reserve Bank of India (RBI) has imposed penalties on three prominent state-owned banks, State Bank of India (SBI), Indian Bank and Punjab & Sind Bank, for their non-compliance with various regulatory norms. These penalties serve as a stern reminder of the importance of adherence to banking regulations and directives issued by the RBI.

Penalty on State Bank of India (SBI)

Date: September 21, 2023

Monetary Penalty: ₹1.30 Crore

The RBI imposed a monetary penalty of ₹1.30 Crore on the State Bank of India (SBI) for its failure to comply with certain directives issued by the RBI. Specifically, the bank was found to be in violation of the guidelines pertaining to ‘Loans and Advances – Statutory and Other Restrictions‘ and ‘Guidelines on Management of Intra-Group Transactions and Exposures.’

The violations by SBI included:

• Inadequate Due Diligence: SBI sanctioned a term loan to a corporation without conducting due diligence on the viability and bankability of the projects for which the loan was sanctioned. This oversight did not ensure that revenue streams from these projects were sufficient to meet the debt servicing obligations.
• Budgetary Resource Misuse: The bank allowed the repayment and servicing of the term loan to be made out of budgetary resources, which was not in compliance with the regulations.
• Intra-Group Exposure Limit: SBI did not consider the intra-day limit sanctioned to its group entity when computing the intra-group exposure limit, leading to a breach of the prescribed limits.

Upon receiving a notice from the RBI, SBI was required to show cause as to why a penalty should not be imposed on the bank for its failure to comply with the regulatory directives. After a thorough examination of the bank’s response, oral submissions during a personal hearing, and additional submissions, the RBI concluded that the charges of non-compliance were substantiated and warranted the imposition of a monetary penalty.

Penalty on Punjab & Sind Bank

Date: September 21, 2023

Monetary Penalty: ₹1.00 Crore

Punjab & Sind Bank faced a penalty of ₹1.00 Crore for non-compliance with the provisions of sub-section (2) of Section 26A of the Banking Regulation Act, 1949. This penalty was imposed in relation to the ‘Depositor Education and Awareness Fund Scheme, 2014-Section 26A of Banking Regulation Act, 1949-Operational Guidelines.’

The violations by Punjab & Sind Bank involved:

• Failure to Credit Depositor Education Fund: The bank failed to credit the eligible amount to the Depositor Education and Awareness Fund within the prescribed period, as mandated by Section 26A of the Banking Regulation Act.

The RBI’s action against Punjab & Sind Bank was primarily based on deficiencies in regulatory compliance and did not question the validity of any transactions or agreements made between the bank and its customers.

Penalty on Indian Bank

Date: September 21, 2023

Monetary Penalty: ₹1.62 Crore

Indian Bank faced a substantial penalty of ₹1.62 Crore for its non-compliance with various RBI directives, including those related to ‘Loans and Advances – Statutory and Other Restrictions,’ ‘Reserve Bank of India [Know Your Customer (KYC)] Directions, 2016,’ and ‘Reserve Bank of India (Interest Rate on Deposits) Directions, 2016.’

The violations by Indian Bank included:

• Non-Compliance with Loan and Advances Regulations: Indian Bank failed to comply with the directives pertaining to loans and advances, which are essential for maintaining the integrity of the banking system.
• KYC and Interest Rate Directions: The bank also violated RBI directives related to Know Your Customer (KYC) requirements and interest rate regulations.

The RBI’s imposition of the monetary penalty on Indian Bank was executed under the Banking Regulation Act, 1949, emphasizing the significance of adhering to these regulations.

RBI’s Penalties As A Stark Reminder

The recent penalties imposed by the RBI on State Bank of India, Punjab & Sind Bank, and Indian Bank underline the central bank’s commitment to maintaining the stability and integrity of the Indian banking sector. These penalties serve as a stark reminder to all financial institutions that compliance with regulatory norms and directives is of paramount importance. It is imperative for banks to take necessary steps to ensure strict adherence to these regulations to avoid such penalties in the future.

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