The Reserve Bank of India (RBI) announced that it has imposed penalties on Mahindra & Mahindra Financial Services Ltd, Indian Bank, and Muthoot Money Limited for non-compliance with regulatory norms. Mahindra & Mahindra Financial Services Ltd has been fined Rs 6.77 crore for failing to comply with norms related to the disclosure of interest rates to borrowers at the time of loan sanction.
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Meanwhile, Indian Bank has been fined Rs 55 lakh for contravention of certain Know Your Customer (KYC) norms, and Muthoot Money Limited has been fined Rs 10.50 lakh for non-compliance with certain provisions of the ‘Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016‘. These penalties demonstrate the RBI’s commitment to enforcing regulatory guidelines and promoting transparency and compliance in the Indian financial system.
Need of the penalizing Mahindra Finance and Indian Bank:
The RBI had issued guidelines to all Non-Banking Financial Companies (NBFCs) and banks in 2019, stating that they must disclose the applicable interest rates and other charges related to the loans given to the customers, in a transparent manner. This includes information about the interest rates, processing fees, prepayment charges, penal interest, and any other fees or charges that may be applicable.
However, during an inspection conducted by the RBI, it was found that Mahindra Finance and Indian Bank had failed to comply with these guidelines. Mahindra Finance was found to be non-compliant in 2019, while Indian Bank was non-compliant in 2020.
The RBI has stated that the penalties have been imposed based on the severity of the non-compliance and taking into account the size of the respective banks. The penalties are also aimed at sending a message to all NBFCs and banks that they must strictly adhere to the RBI’s guidelines regarding the disclosure of interest rates and other charges.
Mahindra Finance and Indian Bank have been instructed to take necessary measures to comply with the RBI’s guidelines and submit a compliance report to the RBI within a stipulated time frame.
Non-compliance with the guidelines:
This is not the first time that the RBI has penalized banks and NBFCs for non-compliance with its guidelines. The central bank has been taking a tough stance on such violations, in order to protect the interests of borrowers and ensure transparency in the lending process.
In conclusion, the penalties imposed by the RBI on Mahindra Finance and Indian Bank serve as a reminder to all banks and NBFCs to comply with the regulatory guidelines in order to avoid similar action by the RBI. The RBI’s efforts to ensure transparency in the lending process will go a long way in strengthening the Indian financial system.
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