In a series of enforcement actions underscoring its commitment to regulatory discipline, the Reserve Bank of India (RBI) imposed monetary penalties totaling ₹3.60 lakh on five cooperative banks and one non-banking financial company (NBFC), Vedvyas Finance Pvt Ltd.
The fines, ranging from ₹30,000 to ₹1 lakh, targeted violations of Know Your Customer (KYC) norms, governance guidelines, and provisions of the Banking Regulation Act. Institutions such as The Tanur Cooperative Urban Bank Ltd in Kerala, Kodagu District Cooperative Central Bank Ltd in Karnataka, Mysore and Chamarajnagar District Cooperative Central Bank Ltd in Karnataka, Pali District Central Cooperative Bank Ltd in Rajasthan, Loknete R.D. Appa Kshirsagar Sahakari Bank Ltd in Maharashtra, and Vedvyas Finance faced penalties for lapses that ranged from inadequate customer due diligence to non-compliance with lending norms.
These penalties reflect RBI's intensified oversight in an era of heightened financial risks. The central bank issued six separate orders, affecting cooperative banks and an NBFC across states like Kerala, Karnataka, Rajasthan, Maharashtra, and Odisha.
KYC BREACHES AT FORE
KYC violations featured prominently, with institutions penalized for shortcomings in customer identification and transaction monitoring. Tanur Cooperative Urban Bank was fined ₹50,000 for failing to upload KYC records of customers onto the Central KYC Records Registry (CKYCR). Mysore and Chamarajnagar District Cooperative Central Bank Ltd was fined ₹1 lakh for holding shares in a cooperative society in violation of the Banking Regulation Act and failing to upload customer KYC records to CKYCR within the prescribed timeline. Pali District Central Cooperative Bank was fined ₹50,000 for non-compliance with RBI directions on KYC, including failure to put in place a system for periodic review of account risk categorisation.
Vedvyas Finance Private Limited, an NBFC, was fined ₹30,000 for failing to comply with governance-related directions, as it did not obtain prior written approval before appointing a director, leading to a change in management without permission. In all cases, RBI emphasized that the penalties were based on deficiencies in regulatory compliance and were not intended to pronounce on the validity of any transaction or agreement entered into with customers.
GOVERNANCE AND LENDING LAPSES
Governance failures and lending norm breaches also drew scrutiny. Kodagu District Cooperative Central Bank was fined ₹1 lakh for contravening Section 20 of the Banking Regulation Act, 1949, after a statutory inspection by NABARD revealed it had sanctioned loans to its directors in violation of regulatory norms.
Loknete R.D. Appa Kshirsagar Sahakari Bank was fined ₹30,000 for non-compliance with RBI directions on loans and advances to directors, their relatives, and firms in which they have an interest, as well as for contravening Sections 20(1) and 35(2) of the Banking Regulation Act; it had sanctioned loans to two of its directors and failed to furnish requisite information during inspection.
BROADER REGULATORY CONTEXT
These actions align with RBI's ongoing strategy to enforce compliance among smaller financial players. RBI's preference for proportionate enforcement is evident in the modest penalty amounts.
The fined amounts, though small, signal RBI's calibrated approach. Total penalties amounted to ₹3.60 lakh across the six cases.
IMPLICATIONS FOR SECTOR
Stakeholders view this as a reminder of the need for robust compliance. Cooperative banks must address vulnerabilities in internal controls to avoid future penalties.
As India's banking sector navigates economic challenges, RBI's vigilance ensures stability. These penalties reinforce regulatory discipline in the financial ecosystem.