The All-India Bank Employees' Association (AIBEA) has urged the Union government to introduce a national accountability policy requiring public sector banks (PSBs) to identify officials responsible for regulatory violations and recover monetary penalties from those found accountable, rather than allowing banks—and ultimately taxpayers—to bear the cost.
In a letter to newly-appointed department of financial services (DFS) secretary Sanjay Lohiya, AIBEA general secretary CH Venkatachalam said the current system creates a ‘serious governance deficit’ because monetary penalties imposed by Reserve Bank of India (RBI) for regulatory non-compliance are paid from banks' resources without fixing individual responsibility.
AIBEA said RBI has, over the years, imposed penalties on banks for violations involving know-your-customer (KYC) and anti-money laundering (AML) norms, customer protection, cybersecurity, fraud reporting, outsourcing, exposure norms, prudential regulations and maintenance of statutory records, among other regulatory requirements. It said such enforcement actions have become recurring, underscoring the need for a comprehensive accountability framework.
According to the Association, RBI has consistently clarified that such penalties relate only to deficiencies in regulatory compliance and do not invalidate customer transactions. However, the financial burden ultimately falls on the banks.
AIBEA said that, in the case of PSBs, these resources largely belong to the government of India, public shareholders and depositors, meaning taxpayers ultimately shoulder the cost of regulatory failures committed by a few officials.
"The present system virtually socialises the cost of regulatory failures while individual accountability remains either absent or invisible," the Association said. It added that the existing arrangement neither serves as an effective deterrent nor promotes a culture of regulatory compliance.
The Association said existing governance principles already require accountability at multiple levels. It cited the Companies Act, 2013, which imposes fiduciary responsibilities on boards and key managerial personnel; the government's corporate governance guidelines for public sector enterprises; and the RBI's corporate governance framework, all of which emphasise the responsibility to maintain effective compliance systems. However, it said there is no uniform policy requiring banks to fix accountability when regulatory penalties are imposed.
AIBEA has proposed that the Union ministry of finance (MoF) introduce a national accountability policy for regulatory non-compliance applicable to all PSBs.
Among its recommendations, the Association called for mandatory identification of officials responsible for every regulatory violation resulting in a monetary penalty; independent internal committees to conduct time-bound inquiries; fixation of responsibility following due process and principles of natural justice; and disciplinary proceedings wherever negligence, misconduct or deliberate disregard of regulatory instructions is established.
It also said accountability should extend beyond operational staff to senior management wherever systemic failures are identified.
The Association further proposed mandatory reporting of every regulatory penalty to the board of directors, along with action-taken reports; annual public disclosure of penalties, the nature of violations, disciplinary action and amounts recovered from responsible officials; and strengthening banks' internal compliance architecture through specialised compliance departments, better staffing, continuous training and modern monitoring systems.
AIBEA said employees and officers working at branches are frequently subjected to disciplinary proceedings even for relatively minor procedural lapses. It argued that it is unjust for major regulatory failures resulting in penalties running into lakhs or crores of rupees to be borne by institutions without assigning responsibility to those accountable.
The Association said PSBs are custodians of public savings and institutions established to serve national development. Every rupee paid as a regulatory penalty reduces public resources and affects the interests of depositors, shareholders and the government, it said.
According to AIBEA, a transparent accountability framework would improve governance standards, strengthen regulatory compliance, protect public money, enhance public confidence in the banking system and reinforce the principle that no individual, regardless of position, is above accountability.
The Association urged the DFS to give urgent consideration to framing a comprehensive policy on accountability for regulatory non-compliance by banks. It also said it was willing to participate in consultations with the government and provide detailed suggestions. Copies of the letter were also sent to the RBI deputy governor and the chairman of the Indian Banks' Association (IBA).
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RBI itself needs to adopt the same method rather than brushing it under the carpet.