Tag Archives: RBI

penalty on SBI

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52627

RBI has levied a penalty of Rs.10 million on India’s largest bank, State Bank of India for violation of section 19(2) of the Banking Regulation Act, 1949.

The said section states that no bank shall hold 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.

SBI has ostensibly held shares in excess of that limit, though it is not clear in which company. RBI would do better to post the entire adjudication process leading to the penalty on its website, just like other regulators like SEBI, IBBI, IRDAI, CCI do.

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penalty on PSOs

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52609

RBI has levied some monetary penalties on two payment system operators viz. Tata Communications Payment Solutions Limited of Rs.20 million and Apnit Technologies Private Limited of Rs.5.49 million.

The penalties as the press release says is for contravention of section 26(6) of the Payment & Settlement Systems Act, 2007. Section 26 is the penalty cause and sub-section (6) is the residual penalty clause for offences for which no penalties have been specified in the respective section. So what exactly is the violation, is not clear.

RBI could do well to emulate other regulators like SEBI, IRDA, CCI which gives detailed adjudication orders on their websites. It makes understanding the compliances much easier.

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PMC Bank

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52596

Proposed merger of Punjab & Maharashtra Co-operative Bank Limited with Unity Small Finance Bank Limited.

Salient features:

Retail Depositors to be paid in full upto Rs.5 lakhs

Another Rs.50,000/- within 2 years thereafter;

Another Rs.100,000/- within 1 year thereafter;

Another Rs.300,000/- within 1 year thereafter;

Another Rs.550,000/- within 1 year thereafter;

Balance remaining deposit after 10 years from the appointed date.

80% of the uninsured deposits of institutional depositors shall be converted into Perpetual Non Cumulative Preference Shares with 1% annual dividend. Balance 20% will be converted into equity warrants of the transferee bank at a price of Re.1 per warrant. Warrants will be further converted into equity shares at the time of the proposed IPO of the transferee bank.

All interest payments shall cease after 31st March, 2021 (which according to me is unfair considering that we are already in November 2021.)

The Reserve Bank of India has today placed in public domain a draft scheme of amalgamation of The Punjab and Maharashtra Cooperative (PMC) Bank with Unity Small Finance Bank Ltd. (USFB), a banking company incorporated in India under Companies Act, 2013, and having its Registered Office in New Delhi. USFB has commenced operations with effect from November 1, 2021.

PMC Bank Limited, Mumbai, Maharashtra, a Multi-State Urban Cooperative Bank, was placed under All-Inclusive Directions under Sub-section (1) of Section 35-A read with Section 56 of the Banking Regulation Act, 1949 with effect from close of business on September 23, 2019 vide Directive DCBS.CO.BSD-I/D-1/12.22.183/2019-20 dated September 23, 2019 on account of fraud which led to steep deterioration in the net-worth of the bank. The directions were last extended vide Directive dated June 25, 2021 up to December 31, 2021. Given the financial condition of the PMC Bank and in the absence of proposals for capital infusion, the bank was not viable on its own. In that event, the only course of action could have been cancellation of its licence and taking it for liquidation, wherein, depositors would have received payment up to the insurance ceiling of ₹5 lakh.

The draft scheme of amalgamation published today, envisages takeover of the assets and liabilities of PMC Bank including deposits, by the USFB in terms of the provisions of the scheme giving a greater degree of protection for the depositors. It may be seen that USFB is being set up with capital of about ₹1,100 crore as against regulatory requirement of ₹200 crore for setting up of a Small Finance bank under the Guidelines for on-tap licensing of Small Finance bank in Private Sector dated December 5, 2019, with provision for further infusion of capital at a future date after amalgamation.

The Reserve Bank invites suggestions and objections, if any, from members, depositors and other creditors of transferor bank (PMC) and transferee bank (USFB), on the draft scheme, which may be sent to the address mentioned in the “Notice”. The draft scheme has also been sent to transferor bank and transferee bank for their suggestions and objections. The suggestions and objections will be received by Reserve Bank up to 5.00 PM on December 10, 2021. The Reserve Bank will take a final view thereafter.

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internal ombudsman scheme for NBFCs

RBI has vide its circular dated 15th November, 2021 formulated an internal ombudsman scheme for NBFCs. Already an integrated ombudsman scheme for the entire banking & finance sector has been recently formulated by the RBI of which you can find details here https://vramonline.wordpress.com/2021/11/13/banking-ombudsman-scheme/

Now this is an internal ombudsman scheme for the various types of NBFCs i.e. deposit taking NBFCs and non deposit taking NBFCs with asset size over Rs.50000 million. Salient features of the scheme are as follows:

In exercise of the powers conferred by Section 45 (L) read with 45 (M) of the Reserve Bank of India Act, 1934, Reserve Bank of India (RBI) being satisfied that it is in public interest and in the interest of conduct of business relating to Non-Banking Financial Companies (NBFCs), directs NBFCs registered with RBI under Section 45-IA of the RBI Act, 1934, fulfilling the criteria given below, to appoint an Internal Ombudsman (IO).

2. NBFCs fulfilling the following criteria as on date would be required to appoint the IO:

a) Deposit-taking NBFCs (NBFCs-D) with 10 or more branches.

b) Non-Deposit taking NBFCs (NBFCs-ND) with asset size of Rs.5,000 crore and above and having public customer interface.

3. The following types of NBFCs will be excluded from the applicability of this direction:

  1. Stand-alone Primary Dealer;
  2. Non-Banking Financial Company – Infrastructure Finance Company (NBFC-IFC);
  3. Core Investment Company (CIC);
  4. Infrastructure Debt Fund – Non-Banking Financial Company (IDF-NBFC);
  5. Non-Banking Financial Company – Account Aggregator (NBFC-AA);
  6. NBFC under Corporate Insolvency Resolution Process;
  7. NBFC in liquidation;
  8. NBFC having only captive customers.

4. An NBFC shall be required to comply with the provisions of this direction as follows:

a) NBFC fulfilling the criteria (para 2 above) as on date – within six months;

b) NBFC fulfilling the criteria post issue of this direction and NBFC commencing operations after the issue of this direction – within six months of attaining the specified criteria, as may be applicable.

5. Any NBFC which is covered by this direction shall continue to have an IO for a period of three years after the company falls below the thresholds (para 2 above). If the term of the incumbent IO ends before this three-year period, the NBFC, with the prior approval of RBI, may not appoint another IO.

6. Appointment of the IO:

a) The person to be appointed as IO shall fulfil the following prerequisites:

  1. The person shall be either a retired or a serving officer, not below the rank of Deputy General Manager or equivalent in any financial sector regulatory body/any other NBFC/bank, with necessary skills and experience of minimum of seven years of working in areas such as non-banking finance, banking, financial sector regulation or supervision, or consumer protection.
  2. The person shall not have worked/be working in the NBFC/companies in the Group1 to which the NBFC belongs in which he/she is being appointed as IO.
  3. The person appointed as IO shall not be above the age of 70 years at any point of time during the tenure as IO.

(b) The NBFC may appoint more than one IO depending on the number of complaints received/branch network. In such a case, the NBFC shall define the jurisdiction of each IO.

(c) The Principal Nodal Officer/Nodal Officer, liaising with the offices of RBI Ombudsman, or any other official of the NBFC, shall not act as the IO or vice versa.

7. Tenure of the IO: The tenure of the IO shall be for a fixed term of not less than three years, but not exceeding five years and the same shall be indicated in the appointment letter. The IO shall not be eligible for reappointment or for extension of tenure in the same NBFC.

a) The NBFC shall undertake the process of fresh appointment well in advance to fill the vacancy before the expiry of the incumbent IO and ensure that the post of the IO does not remain vacant at any point of time.

b) The IO shall not be removed before the completion of the contracted term without the explicit approval of the Reserve Bank. In case the vacancy arises on account of reasons beyond the control of the NBFC (such as death, resignation, incapacitation, terminal illness, etc.), the NBFC shall appoint a new IO by following the procedure of appointment as indicated at para 6 of this direction, within three months from the date of the vacancy arising.

8. Secretariat and cost of the office of the IO: The NBFC shall depute such number of its officers and/or other staff and make available such infrastructure to the office of the IO as may be considered necessary for its effective functioning.

a) The Board of the NBFC shall fix the emoluments/facilities/benefits of the IO, which should be appropriate keeping in view the stature and position of the IO being at the apex of the grievance redress mechanism of the NBFC, and the need to attract experienced persons with requisite expertise.

b) The emoluments/facilities/benefits of the IO, once determined, shall not be changed during the currency of his/her tenure.

9. Role and responsibilities of the IO: The IO shall deal only with the complaints that have already been examined by the NBFC but have been partly or wholly rejected by the NBFC. In other words, the IO shall not handle complaints received directly from the customers or members of the public.

a) The following types of complaints shall be outside the purview of this direction and shall not be handled by the IO:

  1. Complaints related to frauds, misappropriation etc., except those resulting from deficiency in service, if any, on the part of the NBFC;
  2. Complaints/references relating to (a) internal administration, (b) human resources, (c) pay and emoluments of staff;
  3. References in the nature of suggestions and commercial decisions of the NBFC;
  4. Complaints which have been decided by or are already pending in other for a such as Consumer Disputes Redressal Commission, courts, etc.

b) The complaints that are outside the purview of this direction shall be immediately referred back to the NBFC by the IO.

c) The IO shall examine the complaints based on records available with the NBFC, including any documents submitted by the complainant, and comments/clarifications furnished by the NBFC to the specific queries of the IO. The IO may seek additional information from the complainant through the NBFC.

d) The NBFC shall furnish all records/documents sought by the IO to enable expeditious redress/resolution of customer grievances.

e) The IO may hold meetings with the concerned functionaries/departments of the NBFC and seek any record/document available with the NBFC that is necessary for examining the complaint/decision.

f) The IO shall periodically analyse the pattern of all complaints received against the NBFC, such as product-wise, category-wise, consumer group-wise, geographical location-wise, etc. and provide inputs to the NBFC for policy intervention, if any.

g) The IO shall not represent the NBFC in legal cases before any court or fora or authority.

h) The IO shall report to the Managing Director/Chief Executive Officer of the NBFC administratively, and to the Board functionally.

10. Procedural guidelines for NBFCs regarding complaints referred to the IO by the NBFC: The NBFC shall formulate a Standard Operating Procedure approved by its Board and establish a system of auto-escalation of all complaints that are partly or wholly rejected by the NBFC’s internal grievance redress mechanism to the IO for a final decision.

a) The NBFC shall internally escalate all such complaints to the IO within a period of three weeks from the date of receipt of the complaint. The IO and the NBFC shall ensure that the final decision is communicated to the complainant within 30 days from the date of receipt of the complaint by the NBFC.

b) In case the NBFC has a complaint management software, it shall provide to the IO read-only access to the system and enable uploading of the decision of the IO.

c) The IO shall also have read-only access to the Reserve Bank’s Complaint Management System to enable the IO to keep track of: (a) the cases forwarded by the offices of RBI Ombudsmen, (b) decisions of the RBI Ombudsmen, and (c) where applicable, the decision of the Appellate Authority under the RBI Ombudsman scheme.

d) The decision of the IO shall be binding on the NBFC, except in cases where the NBFC has obtained approval for disagreeing with the IO’s decision as stated in sub-para 10 (f).

e) In case the IO upholds the decision of the NBFC to reject/partly reject the complaint, the reply to the customer should explicitly state the fact that the complaint has been examined by the IO and, for the reasons stated in the reply, the decision of the NBFC has been upheld.

f) In case the IO overrules the decision of the NBFC to reject/partly reject the complaint, the NBFC can disagree with the decision of the IO with the approval of the Executive Director/Managing Director/Chief Executive Officer as may be applicable. In such cases, the reply to the complainant shall explicitly state the fact that the complaint was examined by the IO and the decision of the NBFC was overruled by the IO in favour of the complainant; however, the NBFC, with the approval of the Managing Director/Chief Executive Officer, has disagreed with the decision of the IO. All such cases shall be subsequently reviewed on a quarterly basis by the Board of the NBFC.

g) In case of complaints that are fully or partly rejected even after examination by the IO, the NBFC shall necessarily advise to the complainant as part of the reply that he/she can approach the RBI Ombudsman for redress (if the complaint falls under the RBI Ombudsman mechanism) along with complete details. The advice should include the link to Reserve Bank’s portal (cms.rbi.org.in) for online filing of customer complaints.

h) The NBFC shall use the analysis of complaints handled by the IO in their training programmes/conferences to raise awareness among the frontline staff about, inter-alia, the pattern of complaints being received in the NBFC, their root causes, remedial measures and expected action on the part of frontline staff. The IO may also be associated with such trainings, where necessary.

i) While assessing the performance of the IO, in addition to the level of pendency etc., the NBFC shall also consider the number of cases where substantive differences were observed between the decisions of the IO vis-à-vis those given by the RBI Ombudsman subsequently.

j) The NBFC shall disseminate the guidelines/instructions regarding the role of the IO among its staff while communicating the appointment of the IO in the organization (all branches and administrative offices).

k) The NBFC shall not provide the contact details of the IO in the public domain as the IO shall not handle complaints received directly from the customers.

l) The decision of the IO shall mandatorily be included in the information submitted by the NBFC to the office of the RBI Ombudsman while replying to/furnishing documents to the office of the RBI Ombudsman.

m) If the opinion of the IO is not available with the NBFC when the complainant approaches the RBI Ombudsman, the NBFC should obtain the views of the IO and include the same in its submission to the office of the RBI Ombudsman.

n) The IO shall function from the Head/Corporate Office of the NBFC.

11. Reporting to RBI: The NBFC shall put in place a system of periodic reporting of information to Reserve Bank as indicated below:

a) On a quarterly basis, the total number of complaints received, the number of partly or wholly rejected complaints and the number of complaints escalated to the IO, within 15 days from the end of the quarter;

b) On an annual basis:

  1. the number of cases where the decision of IO has been rejected (with the approval of Managing Director/Chief Executive Officer), to be submitted by April 15; and
  2. the number of cases closed by the IO, and age-wise number of cases where the NBFC was yet to implement the decision of the IO, to be submitted by April 15.

The reporting format is given in Annex.

c) The NBFC shall, within five working days of appointment of the IO, furnish the details of the IO to the Chief General Manager, Consumer Education and Protection Department, Reserve Bank of India, Central Office, 1st Floor, Amar Building, Sir P M Road, Mumbai – 400 001 (email: cgmcepd@rbi.org.in) in the following format:

  1. Name of the Internal Ombudsman;
  2. Details of the last position held/organization name;
  3. Date and period of appointment;
  4. Brief professional profile, including previous exposure to financial services; and
  5. Contact details, i.e., address, phone/fax numbers, email address, etc.

12. Board Oversight: The IO shall furnish periodic reports to the Board of the NBFC as may be specified by it, preferably at quarterly intervals, but not less than bi-annually.

13. Audit: The internal audit of the NBFC shall cover the implementation of this direction.

a) The audit shall, inter-alia, cover aspects relating to:

  1. the infrastructure (space, IT infrastructure, human resources, etc.) provided to the IO;
  2. adherence with various timelines indicated in the direction;
  3. support provided by the NBFC to the IO for redress of the complaint; (refer para 9 (c) and (d))

b) The scope of the internal audit shall exclude any assessment of the correctness of decisions taken by the IO.

14. Supervisory Oversight: The areas relating to customer service and customer grievance redress, as well as the implementation of this direction, shall be a part of the risk assessment and supervisory review undertaken by the Reserve Bank. Further, Reserve Bank will review the cases where the decision of the IO has not been accepted by the NBFC and the aggrieved customer approaches the RBI Ombudsman, for assessing the effectiveness of the internal grievance redress mechanism of the NBFC and initiating corrective actions as it may deem fit.

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Banking Ombudsman Scheme

RBI has introduced a single integrated ombudsman scheme for the entire banking and financial services sector. It includes within its ambit, all commercial banks, regional rural banks, co-operative banks, NBFCs which accepts deposits or which has assets exceeding Rs.100 crores and all system participants. Procedure for redressal of grievance under the Scheme is given in Chapter IV of the Scheme.

In exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949 (10 of 1949), Section 45L of the Reserve Bank of India Act, 1934 (2 of 1934) and Section 18 of the Payment and Settlement Systems Act, 2007 (51 of 2007), and in supersession of its Notifications Ref. (i) CEPD. PRS. No. 6317/13.01.01/2016-17 dated June 16, 2017; (ii) CEPD. PRS. No. 3590/13.01.004/2017-18 dated February 23, 2018; and (iii) CEPD. PRS. No. 3370/13.01.010/2018-19 dated January 31, 2019, the Reserve Bank of India, being satisfied that it is in public interest to do so, and to make the alternate dispute redress mechanism simpler and more responsive to the customers of entities regulated by it, hereby integrates the three Ombudsman schemes – (i) the Banking Ombudsman Scheme, 2006, as amended up to July 01, 2017; (ii) the Ombudsman Scheme for Non-Banking Financial Companies, 2018; and (iii) the Ombudsman Scheme for Digital Transactions, 2019 into the Reserve Bank – Integrated Ombudsman Scheme, 2021 (the Scheme).

2. The Scheme covers the following regulated entities:

  1. all Commercial Banks, Regional Rural Banks, Scheduled Primary (Urban) Co-operative Banks and Non-Scheduled Primary (Urban) Co-operative Banks with deposits size of Rupees 50 crore and above as on the date of the audited balance sheet of the previous financial year;
  2. all Non-Banking Financial Companies (excluding Housing Finance Companies) which (a) are authorised to accept deposits; or (b) have customer interface, with an assets size of Rupees 100 crore and above as on the date of the audited balance sheet of the previous financial year;
  3. all System Participants as defined under the Scheme.

3. The regulated entities shall comply with the Scheme from the date of its implementation.

4. The format for filing a complaint under the Scheme is annexed.

5. The Scheme shall come into force from November 12, 2021.

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govt securities – retail investors

RBI has laid down guidelines for participation of retail investors in government securities as per the above circular link. The salient features are as follows:

Scheme for Non-Competitive Bidding Facility in the auction of
Government of India Dated Securities and Treasury Bills

I. Scope: With a view to encouraging wider participation and retail holding of Government securities, retail investors are allowed participation on “non- competitive” basis in select auctions of dated Government of India (GoI) securities and Treasury Bills.

II. Definitions: For the purpose of this scheme, the terms shall bear the meaning assigned to them as under:

  1. Retail investor is any person, including individuals, firms, companies, corporate bodies, institutions, provident funds, trusts, and any other entity as may be prescribed by RBI.
  2. ‘Aggregator/Facilitator’ means a Scheduled Bank or Primary Dealer or Specified Stock Exchange or any other entity approved by RBI, permitted to aggregate the bids received from the investors and submit a single bid in the non-competitive segment of the primary auction.
  3. ‘Specified stock exchange’ means SEBI recognised Stock Exchange, which have received No Objection Certificate (NOC) from SEBI to act as aggregator/facilitator in the primary auction segment.
  4. ‘Eligible Provident Funds’ are those non-government provident funds governed by the Provident Funds Act 1925 and Employees’ Provident Fund and Misc. Provisions Act, 1952 whose investment pattern is decided by the Government of India.

III. Eligibility:

(A) Participation on a non-competitive basis in the auctions will be open to a retail investor who:

  1. does not maintain current account (CA) or Subsidiary General Ledger (SGL) account with the Reserve Bank of India; and
  2. Submits the bid indirectly through an Aggregator/Facilitator permitted under the scheme; or
  3. maintains the ‘Retail Direct Gilt Account’ (RDG Account) with RBI

Exceptions:

a. Regional Rural Banks (RRBs) and Cooperative Banks:

  1. Regional Rural Banks (RRBs) and Cooperative Banks shall be covered under this Scheme only in the auctions of dated securities in view of their statutory obligations.
  2. Since these banks maintain SGL account and current account with the Reserve Bank of India, they shall be eligible to submit their non- competitive bids directly.

b. State Governments, eligible provident funds and Others:

  1. State Governments, eligible provident funds in India, the Nepal Rashtra Bank, Royal Monetary Authority of Bhutan and any Person or Institution, specified by the Bank, with the approval of Government, shall be covered under this scheme only in the auctions of Treasury Bills.
  2. These bids will be outside the notified amount.
  3. There will not be any restriction on the maximum amount of bid for these entities.

IV. Quantum: Allocation of non-competitive bids from retail investors will be restricted to a maximum of five percent of the aggregate nominal amount of the issue within the notified amount as specified by the Government of India, or any other percentage determined by Reserve Bank of India.

V. Amount of Bid:

1. The minimum amount for bidding will be ₹10,000 (face value) and thereafter in multiples in ₹10,000 as hitherto.

2. In the auctions of GoI dated securities, the retail investors can make a single bid for an amount not more than Rupees Two crore (face value) per security per auction.

VI. Other Operational Guidelines:

1. The retail investor desirous of participating in the auction under the Scheme would be required to maintain a depository account with any of the depositories or a gilt account under the constituent subsidiary general ledger (CSGL) account of the Aggregator/ Facilitator or ‘Retail Direct Gilt Account’ (RDG Account) with RBI.

2. Under the Scheme, an investor can make only a single bid in an auction. An undertaking to the effect that the investor is making only a single bid will have to obtained and kept on record by the Aggregator/Facilitator.

Submission of Bids:

3. Each Aggregator/Facilitator on the basis of firm orders received from their constituents will submit a single consolidated non-competitive bid on behalf of all its constituents in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system. Except in extraordinary circumstances such as general failure of the Reserve Bank of India Core Banking Solution (E-Kuber) system, non-competitive bid in physical form will not be accepted.

Allotment of Bids:

4. Allotment under the non-competitive segment to the Aggregator/Facilitator will be at the weighted average rate of yield/price that will emerge in the auction on the basis of the competitive bidding. The securities will be issued to the Aggregator/Facilitator against payment on the date of issue irrespective of whether they have received payment from their clients.

5. In case the aggregate amount of bid is more than the reserved amount (5% of notified amount), pro rata allotment would be made. In case of partial allotments, it will be the responsibility of the Aggregator/Facilitator to appropriately allocate securities to their clients in a transparent manner.

6. In case the aggregate amount of bids is less than the reserved amount, the shortfall will be taken to competitive portion.

Issue of Security:

7. Security would be issued only in SGL form by RBI. The Aggregator/Facilitator has to clearly indicate at the time of tendering the non-competitive bids the amounts (face value) to be credited to their main SGL or CSGL account.

8. Delivery in physical form from the Main SGL account is permissible at the instance of the investor subsequently.

9. It will be the responsibility of the Aggregator/Facilitator to pass on the securities to their clients. Except in extraordinary circumstances, the transfer of securities to the clients should be completed within five working days from the date of issue.

Commission/Brokerage charged to Clients

10. The Aggregator/Facilitator can recover up to six paise per ₹100 as brokerage/commission/service charges for rendering this service to their clients. Such costs may be built into the sale price or recovered separately from the clients.

11. In case, the securities are transferred subsequent to the issue date of the security, the consideration amount payable by the client to the Aggregator/Facilitator will include accrued interest from the date of issue.

12. Modalities for obtaining payment from clients towards cost of the securities, accrued interest, wherever applicable, and brokerage/commission/service charges may be worked out by the Aggregator/Facilitator as per agreement with the client.

13. It may be noted that no other costs, such as funding costs, should be built into the price or recovered from the client.

VIII. Reporting Requirements:

Aggregators/Facilitators will be required to furnish information relating to operations under the Scheme to the Reserve Bank of India (Bank) as may be called for from time to time within the time frame prescribed by the Bank.

IX. The aforesaid guidelines are subject to review by the Bank and accordingly, if and when considered necessary, the Scheme will be modified.

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opening of current a/cs

After all that confusion w.r.t to opening & maintaining current accounts for customer, first they come out with a confused circular, then they partly allow and now they have further micro regulated the same. So now borrowers with exposure less than Rs.5 crores need not worry, they can open current account as before. For those with borrowing exposure above Rs.5 crore they can open current account only with those bank which has at least 10% of its borrowing exposure. Where no banks have 10% minimum exposure, then the bank with the highest exposure shall be allowed to open its current account. So much of confusion already. This is a kind of micro mini regulation of credit limits by the RBI through the banking system. Only time will tell, whether it is effective or not.

Please refer to our circular DOR.No.BP.BC/7/21.04.048/2020-21 dated August 6, 2020 on the captioned subject and associated circulars thereon1.

2. On a review and taking into account feedback received from Indian Banks’ Association (IBA) and other stakeholders, it has been decided that banks may open current accounts for borrowers who have availed credit facilities in the form of cash credit (CC)/ overdraft (OD) from the banking system as per the provisions below:

(i) For borrowers, where the exposure of the banking system is less than ₹5 crore, there is no restriction on opening of current accounts or on provision of CC/OD facility by banks, subject to obtaining an undertaking from such borrowers that they shall inform the bank(s), as and when the credit facilities availed by them from the banking system reaches ₹5 crore or more.

(ii) In respect of borrowers where exposure of the banking system is ₹5 crore or more, such borrower can maintain current accounts with any one of the banks with which it has CC/OD facility, provided that the bank has at least 10 per cent of the exposure of the banking system to that borrower.

Further, other lending banks may open only collection accounts subject to the condition that funds deposited in such collection accounts will be remitted within two working days of receiving such funds, to the CC/OD account maintained with the above-mentioned bank maintaining current accounts for the borrower. In case none of the lenders has at least 10% exposure of the banking system to the borrower, the bank having the highest exposure may open current accounts. Non-lending banks are not permitted to open current accounts.

3. It is clarified that borrowers not availing CC/OD facility from the banking system shall continue to maintain current accounts as per para 1(v) of the above mentioned circular dated August 6, 2020, as hitherto.

4. Further, banks are permitted to open/ maintain the following accounts, without any restrictions placed in terms of the above-mentioned circular dated August 6, 2020, subject to meeting the conditions specified as at para 2 of DOR.No.BP.BC.30/21.04.048/2020-21 dated December 14, 2020:

  1. Inter-bank accounts
  2. Accounts of All India Financial Institutions (AIFIs), viz., EXIM Bank, NABARD, NHB, and SIDBI
  3. Accounts opened under specific instructions of Central Government and State Governments
  4. Accounts attached by orders of Central or State governments/regulatory body/Courts/investigating agencies etc. wherein the customer cannot undertake any discretionary debits

5. With reference to FAQ 18 of the circular dated December 14, 2020, in line with FAQ 9, banks maintaining collection accounts are permitted to debit fee/charges from such accounts before transferring the funds to the escrow account/CC/OD account of the borrower.

6. With reference to para 3 of the circular dated December 14, 2020 read with FAQ 17, it is clarified that banks shall monitor all accounts regularly, at least on a half-yearly basis, specifically with respect to the exposure of the banking system to the borrower, and the bank’s share in that exposure, to ensure compliance with these instructions. If there is a change in exposure of banks or aggregate exposure of the banking system to the borrower which warrants implementation of new banking arrangements, such changes shall be implemented within a period of three months from the date of such monitoring.

7. Banks may implement the necessary changes within one month from the date of this circular. The compliance position thereon will be reviewed thereafter.

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gold monetization scheme

RBI has added a couple of clauses to its Gold Monetization Scheme 2015, basically to take care of interest payments when there is death of the depositor, before or after the lock in period and cases where loan has been taken against the gold deposit and there is default in the loan repayment.

The amount payable to the depositor in such cases will be calculated as a sum of (A) and (B), as indicated below:

(A) Actual market value of the gold deposit on the day of withdrawal.

(B) Interest payable on the value of the gold for the period of deposit at the applicable rate.

There are penalties in case of premature closure of the gold deposit scheme, which is less in case of death of the depositor and slightly more in case of loan default.

Copy of the RBI circular can be accessed here.

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penalty on Vasai Sahakari Bank

RBI has levied a fine of Rs.9 million on Vasai Vikas Sahakari Bank Limited for non-compliance with the directions issued by RBI on “Management of Advances – UCBs”, “Income Recognition, Asset Classification, Provisioning and Other Related Matters – UCBs”, with the specific directions issued to the bank vide RBI’s letter dated November 22, 2018 and with the provisions of section 31 read with section 56 of the Banking Regulation Act, 1949 (the Act).

From this it is not clear what exactly is the nature of non compliances or violations for which the RBI has levied the penalty. It would be better if RBI uploaded the entire adjudication order on the site just like SEBI does in case of non compliance or violations of the various SEBI regulations. This is not helping at all.

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52465

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penalty on payment system operators

RBI has imposed huge penalties on two payment system operators viz. Rs.10 million penalty on Paytm Payments Bank limited for not disclosing proper information to the authorities as per section 26(2) of the Payment & Settlement Systems Act. Another penalty of Rs.27,78,750/- on Western Union Financial Services Inc. for non compliance with certain provisions of RBI Master Directions on Money Transfer Service Scheme (MTSS).

What exactly is the nature of non compliance in case of Western Union is not specified but newspaper reports suggest that it is for breaching the ceiling of 30 remittances per beneficiary in the last two years.

You can read the RBI press release here.

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52434

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penalty on SBI

RBI has imposed a monetary penalty of Rs.10 million on State Bank of India for non compliance with the directions contained in ‘Reserve Bank of India (Frauds classification and reporting by commercial banks and select FIs) directions 2016’

There is no clarity from RBI on what exact was the non compliance and for which the penalty is being levied. These kind of cryptic press releases are not helping the governance in the country.

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52425

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penalty on Standard Chartered Bank

RBI has levied a huge penalty of Rs.19.5 million on Standard Chartered Bank, India operations for non compliance with the directions issued by RBI on ‘Customer Protection – Limiting Liability of Customers in Unauthorised Electronic Banking Transactions’, ‘Cyber Security Framework in Banks’, ‘Credit Card Operations of banks’ read with ‘Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks’ and ‘Creation of a Central Repository of Large Common Exposures – Across Banks’ read with ‘Central Repository of Information on Large Credits (CRILC) – Revision in Reporting’. 

I wish RBI would be more specific as to the nature of non compliances. Their press releases are always bland to the point.

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52424

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penalty on Kurla Nagrik Sahakari Bank

RBI has imposed a penalty of Rs.100,000/- on The Kurla Nagarik Sahakari Bank Limited for violation of section 26A of the Banking Regulation Act, 1949 which relates to deposit of unclaimed deposits (unclaimed for 10 years) or amount in accounts which have not been operated upon for a period of 10 years.

RBI should stipulate that these co-operative banks should strengthen their compliance systems by taking on board the help of Company Secretaries. Read on.

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52412

he Reserve Bank of India (RBI) has imposed, by an order dated October 14, 2021, a monetary penalty of ₹1 lakh (Rupees One lakh only) on KNS Bank, The Kurla Nagarik Sahakari Bank Ltd., Mumbai (the bank) for contravention of Section 26-A read with section 56 of the Banking Regulation Act, 1949 (the Act), the Depositor Education and Awareness Fund Scheme, 2014 (the Scheme) framed under section 26 A of the Act. This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47 A (1) (c) read with Section 46 (4) (i) and Section 56 of the Banking Regulation Act, 1949 (the Act), taking into account the failure of the bank to adhere to the aforesaid directions issued by RBI.

This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

Background

The inspection report of the bank based on its financial position as on March 31, 2020, revealed, inter alia, that the bank had not transferred balances, in certain accounts which were unclaimed for more than ten years to Depositor Education and Awareness Fund. Based on the same, a Notice was issued to the bank advising it to show cause as to why penalty should not be imposed for non-compliance with and contravention of the provisions of the Act and the directions issued under the Act, as stated therein.

After considering the bank’s written reply to the Notice and oral submissions made during the personal hearing and subsequent additional submissions, RBI came to the conclusion that the aforesaid charge of non-compliance with RBI directions was substantiated and warranted imposition of monetary penalty.

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penalty on Sahyadri Sahakari Bank

RBI has imposed a penalty of Rs.300,000/- on The Sahyadri Sahakari Bank Limited for violation of section 26A of the Banking Regulation Act, 1949 which relates to deposit of unclaimed deposits (unclaimed for 10 years) or amount in accounts which have not been operated upon for a period of 10 years. Read on.

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52405

The Reserve Bank of India (RBI) has imposed, by an order dated October 13, 2021, a monetary penalty of ₹3.00 lakh (Rupees Three lakh only) on The Sahyadri Sahakari Bank Limited, Mumbai (the bank) for contravention of the provisions of Section 26A read with Section 56 of the Banking Regulation Act, 1949 (the Act), the Scheme framed thereunder and for contravention of /non-compliance with the directions issued by RBI contained in the Master Circular on Frauds – Classification and Reporting. This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47 A (1) (c) read with Section 46 (4) (i) and Section 56 of the Act, taking into account the failure of the bank to adhere to the aforesaid directions issued by RBI.

The action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

Background

The inspection report of the bank based on its financial position as on March 31, 2019, revealed, inter alia, that the bank had (i) not transferred amount unclaimed in accounts for more than ten years to Depositor Education and Awareness Fund (DEA Fund) and (ii) had reported frauds to RBI with an inordinate delay. Based on the same, a Notice was issued to the bank advising it to show cause as to why penalty should not be imposed for non-compliance with and contravention of the provisions of the Act and the aforesaid directions, as stated therein.

After considering the bank’s reply to the Notice and oral submissions made during the personal hearing, RBI came to the conclusion that the aforesaid charges of non-compliance with and contravention of the provisions of the Act and RBI directions were substantiated and warranted imposition of monetary penalty.

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audit firm debarred by RBI

https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52392

The Reserve Bank of India (RBI) in exercise of the powers vested under section 45MAA of the Reserve Bank of India Act, 1934, has, by an order dated September 23, 2021, debarred M/s Haribhakti & Co. LLP, Chartered Accountants (ICAI Firm Registration No. 103523W / W100048), from undertaking any type of audit assignment/s in any of the entities regulated by RBI for a period of two years with effect from April 1, 2022. This action has been taken on account of the failure on the part of the audit firm to comply with a specific direction issued by RBI with respect to its statutory audit of a Systemically Important Non-Banking Financial Company.

2. This will not impact audit assignment/s of M/s Haribhakti & Co. LLP in RBI regulated entities for the financial year 2021-22.

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