After Paytm Payments Bank, RBI Fines Union Bank, RBL Bank, Bajaj Finance For Rule Violations

The Reserve Bank of India (RBI) has penalised a host of leading financial services providers for rule violations. Right after imposing a monetary penalty of a hefty Rs 5.39 crore on Paytm Payments Bank, the central bank on October 13th fined two other banks and 1 major NBFC. These are Union Bank of India, Bajaj Finance, and RBL Bank.

In the latest list of penalties, Union Bank received the highest penalty of Rs 1 crore, while Bajaj Finance faced a small penalty of Rs 8.50 lakh. RBL Bank is penalised with Rs 64 lakh.

Here's what we know!

It needs to be noted that before imposing the penalties, RBI did send a notice to the financial service providers advising them to show cause as to why a penalty should not be imposed on it for failure to comply with the said directions.

RBI stated that after considering the reply to the notice, and oral submissions made during the personal hearing, it came to the conclusion that the charge of non-compliance with the aforesaid RBI directions was substantiated and warranted the imposition of monetary penalty.

Union Bank of India:

RBI imposed a Rs 1 crore penalty on this PSU lender, Union Bank of India for non-compliance with directions regards to 'Loans and Advances - Statutory and Other Restrictions'.

After a statutory inspection of the bank, RBI found out that Union Bank sanctioned a term loan to a Corporation (i) in lieu of or to substitute budgetary resources envisaged for certain projects; (ii) without undertaking due diligence on the viability and bankability of the projects to ensure that revenue streams from the projects were sufficient to take care of the debt servicing obligations; and (iii) the repayment/servicing of which was made out of budgetary resources. This was a rule violation against the said directions of RBI.

RBL Bank:

This Mumbai-based bank which was formerly known as Ratnakar Bank, received a monetary penalty of Rs 64 lakh for non-compliance with Prior approval for acquisition of shares or voting rights in private sector banks Directions, 2015.

On examining, RBI observed that RBL Bank failed to (i) obtain an annual declaration in Form B from one of its major shareholders, within one month of the close of the three financial years ending on March 31, 2018, March 31, 2019 and March 31, 2020, and (ii) furnish certificates to RBI regarding continuance of the 'fit and proper' status of one of its major shareholders, by the end of September of the said three financial years.

Bajaj Finance:

The NBFC giant faced a penalty of Rs 8.50 lakh for non-compliance with the 'Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016'.

According to the central bank's circular, the statutory inspection of the company was conducted by RBI with reference to its financial position as of March 31, 2022, and examination of the Risk Assessment Report and Inspection Report pertaining to the aforementioned inspection and all related correspondence pertaining to the same, revealed, inter alia, non-compliance with the RBI directions to the extent of not reporting and delay in reporting of certain frauds to RBI.

Paytm Payments Bank:

This fintech giant Paytm-backed payment bank received a massive penalty of Rs 5.39 crore for non-compliance with certain provisions of the 'Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016', 'RBI Guidelines for Licensing of Payments Banks' read with 'Enhancement of maximum balance at end of the day', 'Cyber security framework in banks' read with 'Guidelines on reporting of unusual cyber security incidents' and 'Securing mobile banking applications including UPI ecosystem'.

Giving the rationale for the penalty, RBI said, Paytm Payments Bank committed rule violations on six accounts. These are:

- failed to identify the beneficial owner in respect of entities onboarded by it for providing payout services,
- it did not monitor payout transactions and carry out risk profiling of entities availing payout services,
- it breached the regulatory ceiling of end-of-the-day balance in certain customer advance accounts availing payout services,
- it reported a cyber security incident with delay,
- it failed to implement device binding control measures related to 'SMS delivery receipt check', and
- its V-CIP infrastructure failed to prevent connections from IP addresses outside India.

These were observed after special scrutiny from the KYC/AML perspective of the bank which was conducted by RBI.