RBI Slaps Rs 12.19 Crore Penalty On ICICI Bank, Fine Of Rs 3.95 Crore On Kotak Bank; Shares Fall

Share prices of two leading private sector lenders, ICICI Bank and Kotak Mahindra Bank faced heavy selling pressure on Wednesday after the Reserve Bank of India (RBI) imposed a hefty monetary penalty on both of them for violation of its guidelines. ICICI Bank was slapped with a massive Rs 12.19 crore fine, while Kotak Bank got a Rs 3.95 crore penalty.

At the time of writing, ICICI Bank shares traded at Rs 941.20 apiece, down by 1.44%. The stock was near its day's low of Rs 939.25 apiece on BSE.

Meantime, Kotak Bank shares traded at Rs 1749.75 apiece, down by 1.23% on BSE. It was also near its day's low of Rs 1748 apiece.

ICICI Bank:

RBI imposed a monetary penalty of Rs 12.19 crore on ICICI Bank for contravention of sub-section (1) of Section 20 of the Banking Regulation Act, 1949 (the BR Act) read with directions issued by RBI on 'Loans and Advances-Statutory and Other restrictions', sub-section (2) of Section 6 and Section 8 of the BR Act read with directions issued by the RBI on 'Financial Services provided by the Banks', and non-compliance with the RBI directions on 'Frauds classification and reporting by commercial banks and select Fls'

After an investigation, RBI observed that the bank had (i) sanctioned/committed loans to companies in which two of its directors were also directors, (ii) marketed and engaged in the sale of non-financial products, and (iii) failed to report frauds to RBI within the prescribed timelines.

Kotak Bank:

The monetary penalty of Rs 3.95 crore on Kotak Bank was for non-compliance with RBI Directions on "Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks", "Recovery Agents engaged by Banks", "Customer Service in Banks", and "'Loans and Advances - Statutory and Other Restrictions'".

Before the penalty, RBI had carried an investigation into Kotak Bank too. The central bank found out that Kotak committed non-compliance for the following - (i) failed to carry out annual review / due diligence of the service provider, (ii) failed to ensure that customers are not contacted after 7 pm and before 7 a.m., (iii) levied interest from disbursement due date instead of the actual date of disbursement, contrary to the terms & conditions of sanction, and (iv) levied foreclosure charges despite there being no clause in the loan agreement for levy of prepayment penalty on loans recalled/foreclosure initiated by the bank.

It needs to be noted that both ICICI Bank and Kotak Bank received a notice from RBI advising them to show cause as to why a penalty should not be imposed on them for failure to comply with the said direction.

However, after considering the two banks' reply, RBI concluded that the charge of non-compliance with the aforesaid RBI directions was substantiated and warranted the imposition of monetary penalty on the banks.