RBI Penalises Kotak Mahindra, ICICI Bank for Flouting Regulatory Norms

The Reserve Bank of India (RBI) by an order dated October 17, 2023, imposed a monetary penalty on ICICI bank and Kotak Mahindra Bank (KMB) of ₹12.19 crore and ₹3.95 crore respectively.

The banks were penalised for non-compliance with RBI Directions on “Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks”, “Recovery Agents engaged by Banks”, “Customer Service in Banks”, and “Loans and Advances - Statutory and Other Restrictions”.

This penalty has been imposed by the RBI under the provisions of Section 47A(1)(c) read with Sections 46 (4)(i) of the Banking Regulation Act, 1949.

This action is based on the 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.

Why Penalty?
The RBI conducted a ‘Statutory Inspection for Supervisory Evaluation’ (ISE) of the KMB with reference to its financial position as on March 31, 2022.

As per the examination of certain observations of the Risk Assessment Report/Inspection Report pertaining to ISE 2022, the bank undertook the following steps:

1. The bank failed to carry out annual review / due diligence of the service provider.
    
2. It failed to ensure that customers are not contacted after 7 pm and before 7 am.
    
3. It levied interest from disbursement due date instead of the actual date of disbursement, contrary to the terms & conditions of sanction.
    
4. And it levied foreclosure charges despite there being no clause in the loan agreement for levy of prepayment penalty on loans recalled/foreclosure initiated by the bank. 

On similar lines, the ICICI failed to comply the rules of the RBI and came under ire of the RBI for following reason:

1. It sanctioned/committed loans to companies in which two of its directors were also directors.
    
2. It marketed and engaged in the sale of non-financial products.
    
3. It failed to report frauds to RBI within the prescribed timelines.

Consequently, a notice was issued to the bank advising it to show cause as to why penalty imposition should not be done for failure to comply with the said direction, as stated therein. 

Prior to this action, the ICICI bank was slapped with a penalty of Rs. 58.9 crore by the RBI for violating norms relating to sale of government securities from the held-to-maturity category of its bonds portfolio.

In case of both the banks, the RBI said, “this action is based on the 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.”

Public Ire on Banks
In the wake of RBI action, people on platform X vented out annoyance over mishappenings in the banks. 

Anshul Gupta slammed the poor practices of Kotak Mahindra Bank and pushed for RBI led investigations across the banking sector. 

Another handle, Harshal Hede alleged the ICICI bank for charging interest from the cheque generation date instead of actual handover or clearing of the cheque.  

Gaureesh Vats Shukla, a stock market expert, tweeted, “Troubling part is most customers are not even aware of the charges they are paying and even if they find one they just raise it among family, friends. Some are not aware of the rights they are provided by the RBI and some just don't bother to raise it with the bank. Happy that RBI is looking into it.”