In recent developments, the Reserve Bank of India (RBI) has levied significant fines on ICICI Bank and Kotak Mahindra Bank for regulatory violations. The penalties imposed by the RBI serve as a stern reminder of the importance of adherence to banking regulations and the potential consequences of non-compliance.

ICICI Bank Faces RBI Wrath:

During its inspections of ICICI Bank in both 2020 and 2021, the RBI unearthed several irregularities that led to the imposition of a substantial fine of approximately Rs 12.2 crore. The violations included:

1. Lending Rules Violation: ICICI Bank was found to have extended loans to companies where two of its directors held board positions, contrary to RBI guidelines.
2. Selling Non-Financial Products: The bank was also penalized for marketing and selling non-financial products, activities that fall outside the purview of a commercial bank.
3. Failure to Report Fraud Promptly: Additionally, ICICI Bank failed to promptly report instances of fraud to the RBI.

Following these findings, the RBI issued a show-cause notice to ICICI Bank, which responded with its defense. After evaluating the bank’s response, the central bank concluded that the violations were substantiated and warranted the monetary penalty.

It’s worth noting that the penalty imposed on ICICI Bank surpasses the one levied on HDFC Bank in May 2021 for irregularities in auto loans and is also higher than the total fines imposed on private banks in FY23, totaling Rs 12.17 crore.

Kotak Mahindra Bank Also Faces RBI Action:

In a separate enforcement action, Kotak Mahindra Bank was fined nearly Rs 4 crore for non-compliance in various areas. RBI’s inspection of Kotak Bank’s financial position as of March 2022 uncovered several irregularities, including:

1. Risk Management and Outsourcing Violations: The bank was found to have violated rules concerning risk management and outsourcing.
2. Improper Loan Recovery Practices: Kotak Bank disregarded RBI directions regarding loan recovery, including contacting customers after hours and charging interest from the date of loan approval instead of the date of actual disbursement.
3. Prepayment Penalties on Small Borrowers: The bank imposed prepayment penalties on small borrowers, despite loan terms lacking provisions for such fines.

Like ICICI Bank, Kotak Bank received a show-cause notice from the RBI. After due consideration, the RBI decided that the charges of non-compliance with its directives were substantiated and thus imposed a financial penalty on the bank.

These actions by the RBI underscore the regulator’s commitment to maintaining the integrity and stability of the banking sector. It serves as a reminder to all financial institutions to diligently adhere to regulatory guidelines and promptly address any shortcomings to avoid similar penalties in the future.