RBI Imposes Fines On Top PSU Banks For Regulatory Violations; SBI, Canara Bank And CUB In Focus

The Reserve Bank of India (RBI) took decisive action against prominent banks, including the State Bank of India (SBI), Canara Bank, and City Union Bank, for regulatory violations. The penalties, totalling several crores, underscore the importance of adherence to banking regulations and guidelines.

The country's largest lender, the State Bank of India (SBI), found itself in the regulatory crosshairs as the RBI imposed a Rs 2 crore fine for non-compliance with provisions of the Banking Regulation Act. An inspection revealed that SBI held shares exceeding 30% of the paid-up share capital of certain companies as a pledgee. Additionally, the bank failed to credit the eligible amount to the Depositor Education and Awareness Fund within the mandated period.

The penalty, imposed under the RBI's powers vested in the Banking Regulation Act of 1949, serves as a stern reminder to financial institutions regarding the importance of strict adherence to regulatory frameworks.

Canara Bank, another state-owned giant, faced the brunt of regulatory action with a penalty of Rs 32.30 lakh. The RBI cited non-compliance with various directions, including those related to the data format for furnishing credit information, Resolution Framework 2.0 for COVID-19 related stress on MSMEs, and Resolution Framework 2.0 for individuals and small businesses.

RBI's scrutiny revealed that Canara Bank failed to rectify rejected data and upload it to credit information companies within the stipulated seven-day period. Moreover, the bank restructured accounts that were not classified as standard assets as of March 31, 2021. The penalty, is imposed under the Banking Regulation Act of 1949 and the Credit Information Companies (Regulation) Act of 2005.

City Union Bank (CUB) faced a significant penalty of Rs 66 lakh for regulatory non-compliance. The RBI pointed out deviations in income recognition, asset classification, and provisioning pertaining to advances, highlighting a substantial divergence between reported non-performing assets (NPAs) and those assessed during the inspection.

Additionally, CUB lacked a systematic approach for periodically reviewing the risk categorization of customer accounts, violating RBI's prudential norms. The penalty, imposed under the Banking Regulation Act of 1949, emphasizes the need for banks to implement robust risk assessment mechanisms and adhere to RBI's KYC directions.

The recent penalties levied by the RBI indicate a commitment to maintaining the integrity and stability of the banking sector. Financial institutions play a crucial role in the economy, and adherence to regulatory norms is imperative for fostering trust among depositors and ensuring the overall health of the financial system.

The violations range from shareholding limits and credit information reporting to prudential norms on income recognition and asset classification. The penalties, calculated based on the RBI's regulatory powers, serve as a deterrent for banks and underscore the importance of timely rectification of data, adherence to resolution frameworks, and the implementation of robust risk management practices.