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The Reserve Bank of India (RBI) took stringent action across the financial space in the last fiscal and not just on Paytm Bank as is evident from the more than doubling of the penalties and fines imposed by it during the year.

The central bank imposed monetary penalties on 64 banks and Non-Banking Financial Companies (NBFCs) amounting to Rs 74.1 crore, compared to Rs 33.1 crore imposed on 41 lenders in FY23. The penalties were primarily for non-compliance with regulatory directives encompassing areas such as Know Your Customer (KYC) norms, credit reporting, interest rates, customer service, and fraud monitoring. The central bank’s focus areas included non-compliance, customer grievances, data privacy, governance, KYC norms, and anti-money laundering measures.

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

However, RBI’s commitment to enhancing governance and transparency within financial institutions would lead to increased capital costs.

Action on banks

During FY24, 35 regulatory actions were taken 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.

In October 2023, RBI penalised Paytm Payments Bank for various violations related to beneficiary identification, cyber security norms, and reporting delays. The bank was subsequently directed 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.

  • Published On Apr 2, 2024 at 08:00 AM IST

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