RBI Imposes ₹3 Lakh Penalty on 2 Cooperative Banks from Tamil Nadu

Moneylife Digital Team 19 December 2025

Investor Interest

Reserve Bank of India (RBI) has imposed a penalty of ₹3 lakh on two cooperative banks from Tamil Nadu for non-compliance with the directions issued by the banking regulator. The highest penalty of ₹2.50 lakh has been imposed on Arakonam Cooperative Urban Bank Ltd. The other lender, Tamilnadu Circle Postal Cooperative Bank Ltd has been fined ₹50,000.

Arakonam Cooperative Urban Bank has been penalised for contravention of the provisions of Section 17 of the Banking Regulation Act (BR Act), 1949 and for non-compliance with directions relating to exposure norms and statutory or other restrictions for urban cooperative banks (UCBs), management of advances and know-your-customer (KYC) norms.

RBI’s statutory inspection found that Arakonam Cooperative Urban Bank failed to transfer 20% of its net profit to the statutory reserve for the FY22–23, FY23–24 and FY24–25. The inspection also revealed that the lender sanctioned loans in excess of the prescribed regulatory limits to certain nominal members, granted gold loans under the bullet repayment scheme beyond the permitted limits, opened accounts that did not comply with KYC requirements and failed to upload customers' KYC records to the central KYC records registry (CKYCR) within the prescribed timeline.

Tamilnadu Circle Postal Cooperative Bank has been fined for non-compliance with directions issued by RBI on exposure norms and statutory or other restrictions applicable to UCBs. The lender had sanctioned advances against term deposits to non-members despite not meeting the criteria prescribed for financially sound and well-managed (FSWM) urban cooperative banks.

"After considering the reply and oral submissions of both the banks during the personal hearing, RBI concluded that the charges of non-compliance with directions were substantiated and warranted imposition of monetary penalty," the central bank says.

In both cases, RBI says, the penalties are based on deficiencies in regulatory compliance and are not intended to be pronounced on the validity of any transaction or agreement they entered into with their customer.

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