In the first week of July 2024, the Reserve Bank of India (RBI) penalized five banks for not following its rules. Among them was Punjab National Bank (PNB), which faced a fine of Rs 1.31 crore. This penalty was due to PNB not complying with the RBI’s directions regarding loans and advances, as well as the Know Your Customer (KYC) guidelines set in 2016.
Before penalizing PNB, the RBI imposed fines on four cooperative banks. These banks are The Gujarat Rajya Karmachari Co-operative Bank in Gujarat, The Rohika Central Co-operative Bank in Madhubani, Bihar, The National Co-operative Bank in Mumbai, Maharashtra, and The Bank Employees’ Co-operative Bank in West Bengal. Each of these banks faced various penalty amounts.
The RBI’s penalty on PNB was officially announced on July 3, 2024. The RBI’s statement said, “The Reserve Bank of India (RBI) has, by an order dated July 03, 2024, imposed a monetary penalty of Rs 1,31,80,000 (Rupees One crore thirty-one lakh eighty thousand only) on Punjab National Bank (the bank) for non-compliance with certain directions issued by RBI.”
This penalty was imposed using the powers granted to the RBI under the Banking Regulation Act of 1949. The specific sections invoked were 47 A (1) (c), 46 (4) (i), and 51(1). The decision followed a Statutory Inspection for Supervisory Evaluation (ISE) conducted in 2022, focusing on the bank’s financial position as of March 31, 2022. During this inspection, RBI found that PNB did not comply with several directions.
After identifying these issues, the RBI notified PNB, asking the bank to explain why it failed to follow the rules and why a penalty should not be imposed. Following the bank’s written response and oral submissions during a personal hearing, the RBI concluded that PNB’s violations warranted a monetary penalty.
One major violation involved PNB sanctioning working capital demand loans to two state government-owned corporations against amounts receivable from the government by way of subsidies, refunds, or reimbursements. This was against RBI’s rules.
In addition, PNB failed to keep records of customer identification and their addresses in certain accounts, which is a requirement under KYC guidelines.
The RBI emphasized that the action taken against PNB was due to deficiencies in regulatory compliance. These penalties aim to ensure that all banks follow the established rules and maintain a high standard of operation to safeguard the interests of customers and the financial system.
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