RBI Slaps Hefty Penalty On Kotak Bank, IndusInd Bank And Others

The Reserve Bank of India (RBI) has imposed monetary penalties on Kotak Mahindra Bank and IndusInd Bank for failing to comply with various regulations.

The Central bank has fined INR 1.5 crore on Kotak Mahindra Bank Limited for non-compliance with directions on ‘Customer Protection – Limiting Liability of Customers in Unauthorised Electronic Banking Transactions’, and ‘Loans and Advances – Statutory and Other Restrictions.’

“The Reserve Bank of India (RBI) has, by an order dated June 29, 2022, imposed a monetary penalty of INR 1,05,00,000 (Rupees one crore and five lakh only) on Kotak Mahindra Bank Limited for contravention of the provisions of sub-section (2) of Section 26A of the Banking Regulation Act, 1949,” the official statement read.

According to the statement, this action has been based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

Why Banks Are Fined

The Statutory Inspection for Supervisory Evaluation (ISE) of the bank was conducted by RBI with reference to its financial positions as on March 31, 2018 and March 31, 2019. The examination of the Risk Assessment Reports, Inspection Reports and all related correspondence pertaining to the same, revealed the bank failed to credit the eligible amount to the Depositor Education and Awareness Fund within the period prescribed, credit (shadow reversal) the amount involved in the unauthorised electronic transactions to the customers’ account within 10 working days from the date of notification by the customer.

“In furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for contravention of the provisions of the Act and failure to comply with the directions issued by RBI, as stated therein,” it stated.

IndusInd Bank was fined INR 1 crore for not following KYC directions. A statutory inspection of the bank with reference to its financial position as on March 31, 2020 revealed that the bank had failed to adhere to the customer due diligence procedure in the accounts opened using one time password (OTP)-based e-KYC, in the non-face-to-face mode. In some accounts, the aggregate of all credits in a financial year, in all the deposits taken together, exceeded INR two lakh, and some fixed deposit accounts were opened for amounts exceeding INR one lakh, of which some deposits were for more than INR two lakh.

Notice Issued

Both banks were issued notices asking them to show cause as to why penalties should not be imposed on them. After considering the banks’ replies, oral submissions made during personal hearings and examination of additional submissions made by them, the RBI came to the conclusion that the charges of non-compliance were substantiated and warranted imposition of fines.

Other Banks Fined

Meanwhile, the bank has also fined three more state banks including Nav Jeevan Co-operative Bank Ltd, Ulhasnagar, Balangir District Central Cooperative Bank Limited, Odisha, and Dhakuria Cooperative Bank Ltd, West Bengal.

Nav Jeevan Co-operative Bank Ltd has been fined two lakh for non-compliance with the directions issued by RBI on exposure norms and statutory and other restrictions - UCBs.

The RBI has imposed a monetary penalty of INR 1.00 lakh on Balangir District Central Cooperative Bank Limited for non-adherence with the provisions of Section 9 of the Banking Regulation Act, 1949 and the directions issued by RBI in this regard (Disposal of Non-banking Assets).

A fine of INR two lakh has been imposed on Dhakuria Cooperative Bank Limited, Kolkata, West Bengal for non-adherence with the directions issued on ‘Exposure Norms and Statutory and Other Restrictions – UCBs’ and KYC Direction.