RBI Imposes ₹1.455 Crore Penalty on Central Bank of India for Lending and Customer Protection Breaches

The Reserve Bank of India imposed a monetary penalty of ₹1,45,50,000 on Central Bank of India by an order dated 11 June 2024, citing three distinct breaches of regulatory directions covering lending practices and the protection of customers affected by unauthorised electronic transactions. The fine, equivalent to approximately ₹1.455 crore, was levied under Section 47A(1)(c) read with Sections 46(4)(i) and 51(1) of the Banking Regulation Act, 1949.

The non-compliance was identified during the RBI's Inspection for Supervisory Evaluation conducted in 2022, which used a reference date of 31 March 2022. The regulator said the findings prompted it to issue a show-cause notice to the bank, and after considering the bank's written reply and oral submissions at a personal hearing, it determined that the charges were substantiated and that the monetary penalty was warranted.

THREE VIOLATIONS IDENTIFIED BY SUPERVISORS

The first violation involved Central Bank of India sanctioning a working capital demand loan against government subsidy receivables, an action the RBI said was contrary to its directions on loans and advances. The second concerned the bank's failure to reverse the amounts of unauthorised electronic transactions to affected customer accounts within the prescribed ten working-day window.

The third breach related to the bank's handling of customer complaints arising from those unauthorised transactions: the RBI found that Central Bank of India did not resolve the complaints and pay the required compensation within the stipulated ninety-day period.

The RBI emphasised that the penalty was based solely on deficiencies in regulatory compliance and was not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers. The regulator added that the penalty was without prejudice to any other action it may initiate against the bank.

BANKING REGULATION ACT POWERS INVOKED

The legal basis for the penalty — Section 47A(1)(c) read with Sections 46(4)(i) and 51(1) of the Banking Regulation Act, 1949 — gives the RBI authority to impose financial sanctions on banking companies for contraventions of its directions. The sections empower the central bank to act after giving the institution a reasonable opportunity to be heard, a procedural step that was completed through the show-cause and personal hearing process.

Central Bank of India, a public sector lender, had an opportunity to contest the findings through the show-cause process before the final penalty order was passed. The RBI did not disclose whether the bank had acknowledged the breaches or disputed them during that process.