RBI imposes Monetary Penalty on Indian Overseas Bank

The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs. 1 Crore (Rupees One Crore only) on Indian Overseas Bank (the bank) in an order dated October 31, 2023, for non-compliance with certain RBI directions on ‘Loans and Advances – Statutory and Other Restrictions’. This penalty was imposed by the RBI in accordance with the requirements of Section 47A(1)(c), read with Sections 46(4)(i) and 51(1) of the Banking Regulation Act of 1949.

After reviewing the bank’s response to the notice and its oral representations during the personal hearing, the RBI concluded that the above-mentioned charge of non-compliance was proven and warranted the imposition of a monetary penalty.

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

The RBI conducted the bank’s Statutory Inspection for Supervisory Evaluation (ISE 2022) based on its financial situation as of March 31, 2022. The examination of the Risk Assessment Report/Inspection Report pertaining to ISE 2022, as well as all related correspondence, revealed, inter alia, non-compliance with the aforementioned directions by the bank, to the extent that it sanctioned

1. term loans to two Corporate entities

(i) in lieu of or to substitute budgetary resources envisaged for certain projects; and

(ii) without conducting due diligence on the viability and bankability of the projects to ensure that revenue streams from the projects were sufficient to take care of the debt servicing obligations; and

(iii) the repayment/servicing of which was made out of budgetary resources, and

2. a term loan to another Corporate entity

(i) without conducting due diligence on the viability and bankability of the projects to ensure that revenue streams from the projects were sufficient to meet debt servicing obligations; and

(ii) the repayment/servicing of which was made out of budgetary resources. As a result, a notice was issued to the bank, directing it to show cause why a penalty should not be imposed on it for failing to comply with the RBI’s orders, as indicated therein.