RBI Takes Stringent Action Across Financial Sector, Doubles Penalties Imposed

The Reserve Bank of India (RBI) has intensified its regulatory actions across the financial sector in the last fiscal year, doubling the penalties and fines imposed compared to the previous year. The central bank imposed monetary penalties on a total of 64 banks and Non-Banking Financial Companies (NBFCs), amounting to Rs 74.1 crore. This is a significant increase from the Rs 33.1 crore imposed on 41 lenders in FY23.

The penalties were primarily for non-compliance with regulatory directives in areas such as Know Your Customer (KYC) norms, credit reporting, interest rates, customer service, and fraud monitoring. RBI’s focus areas included non-compliance, customer grievances, data privacy, governance, KYC norms, and anti-money laundering measures.

In addition to imposing penalties, RBI introduced sector-wide measures such as augmenting risk weights on unsecured loans and tightening regulations on Alternative Investment Fund (AIF) investments. These measures aim to address concerns regarding credit underwriting practices, collateral valuation, governance issues, and potential accounting irregularities.

During FY24, RBI took 35 regulatory actions against various banks, including PSU banks, private banks, foreign banks, and small finance banks, with 23 penalties exceeding ₹1 crore. The majority of these actions were related to KYC compliance, timely credit reporting, interest rate regulation, customer service, fraud monitoring, and specific issues concerning NBFCs.

One notable instance was in October 2023 when RBI penalized Paytm Payments Bank for various violations and directed it to wind down its operations by January 31, 2024. RBI’s approach has evolved to include public disclosure of key issues leading to regulatory actions, fostering increased transparency and accountability within the financial sector.