RBI Imposes Penalties On 14 Banks – Free PDF Download

What has happened?

• The Reserve Bank of India (RBI) on July 7 imposed monetary penalties on 14 banks including Bandhan Bank, Bank of Baroda and State Bank of India (SBI) for various rule violations, the central bank said in a press release.
• These 14 banks include public sector banks, private banks, foreign bank, Co-operative banks and one small finance bank.
• This is probably the highest number of banks receiving RBI monetary penalties on a single day for various rule violations.

What RBI said?

• The RBI said it carried out scrutiny in the accounts of the companies of a group, and observed that the banks had “failed to comply with provisions of one or more of the aforementioned
• “In furtherance to the same, notices were issued to the banks advising them to show cause as to why penalty should not be imposed for non-compliance with the directions/contraventions of provisions of Banking Regulation Act, 1949,” RBI said.
• “The replies received from the banks, oral submissions made in the personal hearings, wherever sought by the banks, and examination of additional submissions, where made, were duly considered, and to the extent the charges of non-compliance with RBI directions of provisions of Banking Regulation Act, 1949 were sustained,
• RBI concluded that it warranted imposition of monetary penalty on aforementioned fourteen banks,” the central bank added.
• “The penalties have been imposed in exercise of powers vested in RBI under the provisions of section 47 A (1) (c) read with sections 46 (4) (i) and 51 (1), of the Banking Regulation Act, 1949, as applicable.
• This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers,” RBI said.
• Further, the fines also pertained to contravention of provisions of Section 19(2) and Section 20 (1) of Banking Regulation Act, 1949, the release said.
• Section 19(2) of the Banking Regulation Act, 1949 bars banks from holding shares in any company, whether as pledgee, mortgagee or absolute owner, of an amount exceeding 30% of the paid-up share capital of that company or 30% of its own paid-up share capital and reserves, whichever is less.
• Section 20 (1) of the Act prohibits banks from granting loans or advances on the security of its own shares, or entering into any commitment for granting any such loans or advances

 Actual reason for penalty?

• According to an industry source, the RBI penalties on these banks are mainly linked to banks’ dealings with crisis-ridden Dewan Housing Finance Corporation (DHFL) and its group companies.

What is the case against DHFL?

• Earlier in 2019, the company had defaulted on the payment of interest on its commercial papers and bonds worth Rs 900 crore.
• Though the company maintained that the cash crunch was a temporary problem,
• Most rating agencies downgraded the rating of its commercial papers to ‘D’, indicating the default status.
• This was followed by reports that the promoters of the company,
• Kapil Wadhawan, the then chairman and managing director, and Dheeraj Wadhawan, then a non-executive director, Had transferred funds the company had collected into shell companies,
• Which then re-routed the monies back into the accounts of the Wadhawans.

Current status of DHFL?

• The Mumbai bench of the Nation Company Law Tribunal (NCLT) recently approved the Piramal Group’s Rs 37,250 crore bid for debt-ridden Dewan Housing Finance Ltd (DHFL).

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