RBI Levies Penalty of Rs. 29630000 on Mahindra and Mahindra, IOB and Indian Bank

The Reserve Bank of India (RBI) has recently issued three official notifications stating the monetary penalty imposed on three major Indian Banks. The monetary penalty of Rs. 63.60 lakh, Rs. 1,61,40,000 Lakh and Rs. 71.30 lakh has been imposed on Indian Overseas Bank, Indian Bank and Mahindra and Mahindra Financial Services Limited, respectively.

The notice for Indian Overseas Bank was released on April 17, for Indian Bank on April 08 and for Mahindra and Mahindra Financial Services Limited on April 21.

On Indian Overseas Bank, the penalty has been imposed due to the non-compliance with certain directions issued by the RBI on ‘Credit Flow to Agriculture- Collateral free agricultural loans’ and ‘Lending to Micro, Small & Medium Enterprises (MSME) Sector’. This penalty has been imposed in exercise of powers conferred on the RBI under the provisions of Section 47A(1)(c) read with Sections 46(4)(i) and 51(1) of the Banking Regulation Act, 1949.

On Indian Bank, the penalty has been imposed due to the contravention of provisions of Section 26A of the Banking Regulation Act, 1949 (BR Act) and non-compliance with certain directions issued by RBI on ‘Interest Rate on Advances’, ‘Kisan Credit Card (KCC) Scheme’ and ‘Lending to Micro, Small and Medium Enterprises (MSME) Sector’. This penalty has been imposed in exercise of powers conferred on the RBI under the provisions of Section 47A(1)(c) read with Sections 46(4)(i) and 51(1) of the BR Act.

On Mahindra and Mahindra Financial Services Limited, the penalty has been imposed due to the non-compliance with certain provisions of the ‘Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016’ and ‘Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016’ issued by RBI. This penalty has been imposed in exercise of powers conferred on the RBI under clause (b) of sub-section (1) of Section 58G read with clause (aa) of sub-section (5) of Section 58B of the Reserve Bank of India Act, 1934.

This action was taken because the company did not follow certain regulatory rules. It does not question whether any deals or agreements made by the company with its customers are valid. Also, this financial penalty does not stop the RBI from taking any other action against the company in the future.

Indian Overseas Bank

• The bank had obtained collateral security for agricultural loans up to ₹1.60 lakh in certain cases and
• The bank had obtained collateral security for loans up to ₹10 lakh extended to certain Micro and Small Enterprises (MSEs).

Indian Bank

• The bank failed to benchmark the interest rate on certain floating rate retail loans and loans to certain Micro, Small and Medium Enterprises to an external benchmark rate;
• The bank had obtained collateral security in respect of certain KCC loans upto ₹1.6 lakh and certain loans to Micro and Small Enterprises upto ₹10 lakh; and
• The bank did not transfer the eligible amount to the Depositor Education and Awareness Fund within the prescribed period.

Mahindra and Mahindra Financial Services Limited

• The company did not disclose the processing fees and other charges in certain loan application forms.
• The company did not furnish copies of loan agreements and did not convey details of the loans in the sanction letters to certain borrowers.
• The company did not give a final chance to certain borrowers to repay the loans before the sale/auction of vehicles; and

The company allotted multiple customer identification codes to certain customers, instead of a Unique Customer Identification Code (UCIC) for each individual customer.

Read the official notification for more related information