RBI Penalizes Dhanlaxmi Bank, ESAF Small Finance Bank, Punjab & Sind Bank For Flouting Guidelines

RBI Penalizes Dhanlaxmi Bank, ESAF Small Finance Bank, Punjab & Sind Bank For Flouting Guidelines

The fines were slapped under the Banking Regulation Act, 1949

The Reserve Bank of India (RBI) has imposed a penalty of Rs.1.20 crores on Dhanlaxmi Bank Ltd and Rs.1 crore on Punjab & Sind Bank for violating rules and regulations on loans and advances, know your customer (KYC) directions and guidelines on interest rate on deposits.

A penalty of Rs.29.55 lakh was imposed on ESAF Small Finance Bank for non-compliance with its directions on 'Customer Service in Banks'.

The banking regulator conducted statutory inspections for supervisory evaluation (ISE) of Dhanlaxmi Bank on its financial position as of 31 March 2022. The risk assessment reports (RAR), inspection reports (IR), and related correspondence revealed non-compliance with RBI’s directions.

The bank had sanctioned loans exceeding 75 percent value of the pledged gold ornaments and jewelry for non-agricultural purposes.

Therefore, a penalty was slapped on Dhanlaxmi Bank for non-compliance with the directions on 'Loans and Advances – Statutory and Other Restrictions', KYC, and norms related to the interest rate on deposits.

Dhanlaxmi Bank offered interest rates applicable to normal term deposits on certain senior citizen term deposits instead of a higher rate of interest applicable to the deposits. It did not obtain a permanent account number (PAN) or Form 60 for certain term deposit accounts exceeding Rs.50,000. The bank allotted multiple customer identification codes to individual customers instead of a unique customer identification code (UCIC) to each customer.

Punjab and Sind Bank sanctioned a term loan to a corporation instead of or to substitute budgetary resources envisaged for specific projects without undertaking due diligence on the viability and bankability of the projects. It should have ensured that revenue streams from the projects were sufficient to take care of the debt servicing obligations and the repayment or servicing made from budgetary resources.

The RBI, after considering the reply and oral submissions of Punjab & Sind Bank and Dhanlaxmi Bank, stated that the non-compliance charges with its directions were substantiated and warranted the imposition of a monetary penalty.

The penalties on both banks were based on deficiencies in regulatory compliance and was not intended to pronounce the validity of any transaction or agreement entered by the banks with their customers.

As per the RBI, the penalties were imposed in its exercise of powers under Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949.