The Reserve Bank of India (RBI) has imposed monetary penalties on 176 cooperative banks across six states for breaching various regulatory norms in the financial year 2022-23. The total amount of fines levied by the RBI on these banks is Rs 14.04 crore, according to the RBI’s Annual Report for 2022-23 released on Tuesday.
Reasons for penalties
The RBI said that the penalties were imposed for contraventions or non-compliance with provisions of statutes and certain directions issued by the RBI from time to time. Some of the common reasons for penalties were:
- Non-adherence to the minimum capital to risk weighted assets ratio (CRAR) requirement
- Non-compliance with the norms on income recognition, asset classification and provisioning (IRACP)
- Non-observance of the guidelines on loans and advances to directors and their relatives
- Non-compliance with the norms on know your customer (KYC) and anti-money laundering (AML)
- Non-adherence to the guidelines on cyber security framework
- Non-submission or delayed submission of various returns and reports to the RBI
The RBI said that the penalties were based on the deficiencies in regulatory compliance and were not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers.
Breakdown of penalties
The RBI’s Annual Report for 2022-23 provided a breakdown of the penalties imposed on the cooperative banks in terms of the number of banks, the amount of penalties and the states where the banks are located. The report showed that:
- Out of the 176 cooperative banks penalized, 33 were state cooperative banks (StCBs), 352 were district central cooperative banks (DCCBs) and 1,502 were urban cooperative banks (UCBs).
- The highest number of penalties (52) were imposed on the cooperative banks in Maharashtra, followed by Gujarat (32), Karnataka (24), Tamil Nadu (19), Kerala (16) and Rajasthan (15).
- The highest amount of penalties (Rs 4.76 crore) were levied on the cooperative banks in Gujarat, followed by Maharashtra (Rs 3.62 crore), Karnataka (Rs 1.84 crore), Tamil Nadu (Rs 1.36 crore), Kerala (Rs 1.02 crore) and Rajasthan (Rs 0.86 crore).
The RBI also imposed penalties on seven public sector banks and seven private sector banks worth Rs 3.65 crore and Rs 12.17 crore respectively in the 2022-23 FY. Besides, the RBI imposed penalties on 11 non-banking financial companies (NBFCs) to the tune of Rs 4.39 crore.
Revised regulatory framework for UCBs
The RBI also announced a revised regulatory framework for UCBs based on the recommendations of the Expert Committee on Urban Co-operative Banks. The revised framework aims to strengthen the governance and capital adequacy of UCBs and enhance their resilience and sustainability. The revised framework includes:
- Categorization of UCBs into four tiers based on their deposit size and geographical presence
- Minimum net worth requirement of Rs 2 crore for Tier 1 UCBs operating in a single district and Rs 5 crore for all other UCBs
- Minimum CRAR requirement of 9 per cent for Tier 1 UCBs and 12 per cent for Tier 2 to 4 UCBs
- Reckoning of revaluation reserves as Tier 1 capital at a discount of 55 per cent subject to certain conditions
- Implementation of a risk-based internal audit (RBIA) system for all UCBs
- Adoption of a board of management (BoM) structure for all UCBs
- Alignment of the regulatory norms on exposure limits, priority sector lending, prudential norms and reporting requirements with those applicable to commercial banks
The RBI said that the revised framework will be implemented in a phased manner and the UCBs will be given sufficient time to comply with the new norms.
