RBI imposes Monetary Penalty of Rs.2.91 Crore on HDFC and Axis Bank

The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs.2.91 Crore on HDFC and Axis Bank for non-compliance with certain directions issued by RBI.

In the case of HDFC Bank, RBI imposed a monetary penalty of Rs.1,00,00,000 on HDFC Bank Limited for non-compliance with certain directions issued by RBI on ‘Interest Rate on Deposits’, ‘Recovery Agents engaged by Banks’ and ‘Customer Service in Banks’ read with the BCSBI Code and ‘Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks’.

This penalty was levied in accordance with the authority granted to the RBI by sections 47 A (1) (c) and 46 (4) of the Banking Regulation Act of 1949.

RBI conducted a Statutory Inspection for Supervisory Evaluation (ISE 2022) of the bank based on its financial situation as of March 31, 2022. Based on supervisory findings of noncompliance with RBI instructions and accompanying correspondence, a notice was sent to the bank, asking it to show cause why a penalty should not be imposed for failing to comply with the aforementioned directions. After evaluating the bank’s response to the notice, further submissions, and oral representations made during the personal hearing, the RBI-determined, among other things, that the following charges against the bank were supported and warranted the imposition of a monetary penalty.

The bank:

• gave gifts (in the form of paying a first-year premium for the complimentary life insurance cover) costing more than ₹250 to the depositors at the time of accepting certain deposits;
• opened certain savings deposit accounts in the name of ineligible entities; and
• failed to ensure that customers were not contacted after 7 pm and before 7 am.

The action is based on shortcomings in statutory and regulatory compliance and is not intended to rule on the legality of any transaction or arrangement entered into by the bank with its clients. Furthermore, the issue of a monetary penalty does not preclude the RBI from taking any further action against the bank.

While, in the matter of Axis Bank, RBI levied a monetary penalty of Rs.1.91 crore on Axis Bank Limited (the bank) for contravention of provisions of Section 19 (1) (a) of the Banking Regulation Act, 1949 (BR Act), and non-compliance with certain directions issued by RBI on ‘Interest Rate on Deposits’, ‘Know Your Customer (KYC)’ and ‘Credit Flow to Agriculture- Collateral free agricultural loans’.

This penalty was imposed in accordance with the authority granted to the RBI by Section 47 A (1) (c) and Section 46 (4) (i) of the BR Act.

The RBI performed a Statutory Inspection for Supervisory Evaluation (ISE 2023) of the bank based on its financial situation as of March 31, 2023, as well as an examination of the actions of its subsidiary. Based on supervisory findings of BR Act violations, noncompliance with RBI directions, and related correspondence, a notice was issued to the bank advising it to show cause why a penalty should not be imposed for its failure to comply with the BR Act and RBI directions.

After evaluating the bank’s response to the notice, further submissions, and oral representations made during the personal hearing, the RBI-determined, among other things, that the following charges against the bank were supported and warranted the imposition of a monetary penalty:

• The bank opened certain savings deposit accounts in the name of ineligible entities;
• The bank had allotted multiple customer identification codes to certain customers instead of a Unique Customer Identification Code (UCIC) for each customer;
• The bank had obtained collateral security for agricultural loans upto Rs.1.60 lakh in certain cases; and
• A wholly owned subsidiary of the bank undertook the business of a technology service provider, which is not a permissible business that can be undertaken by a banking company under Section 6 of the BR Act.

The action is based on inadequacies in statutory and regulatory compliance and is not intended to call into question the legitimacy of any transaction or agreement entered into by the bank with its clients. Furthermore, the imposition of a monetary penalty does not preclude any additional action taken by the RBI against the bank.