RBI Slaps Rs46.05 Lakh Penalty on SG Finserve and 4 Cooperative Banks

Moneylife Digital Team 15 October 2024

Investor Interest

Reserve Bank of India (RBI) has imposed penalties of Rs46.05 lakh on a non-banking financial company (NBFC) and four cooperative banks for failing to comply with the directions issued by the banking regulator. The highest penalty of Rs28.30 lakh was levied against SG Finserve Ltd, an NBFC.

The other entities penalised by RBI are: Arunachal Pradesh Rural Bank, Jilla Sahakari Kendriya Bank Maryadit from Madhya Pradesh, Urban Cooperative Bank Ltd from Maharashtra and Sri Kalahasti Cooperative Town Bank Ltd from Andhra Pradesh.

SG Finserve, formerly Moongipa Securities Ltd, has been penalised for failing to comply with specific conditions tied to its certificate of registration (CoR), issued by RBI under Section 45IA (5) of the RBI Act, 1934. The NBFC was found to have accepted public funds and extended loans, violating the conditions stipulated in its CoR.

Arunachal Pradesh Rural Bank was fined Rs14 lakh for failing to comply with RBI's directions to strengthen prudential norms related to asset classification, provisioning, exposure limits and know-your-customer (KYC) regulations.

A statutory inspection conducted by the National Bank for Agriculture and Rural Development (NABARD), focusing on Arunachal Pradesh Rural Bank's financial position as of 31 March 2023, uncovered significant issues, including its failure to classify certain loan accounts as non-performing assets (NPAs), which led to discrepancies in asset classification, and the issuance of multiple unique customer identification codes (UCICs) to individual customers.

Madhya Pradesh-based Jilla Sahakari Kendriya Bank Maryadit was penalised Rs2.75 lakh for contravention of the provisions of section 26A of the Banking Regulation Act (BR Act) and non-compliance with directions on membership of credit information companies (CICs) by cooperative banks. RBI found out that Jilla Sahakari Kendriya Bank had failed to transfer eligible unclaimed deposit amounts to the depositor education and awareness fund (DEAF) within the prescribed period and failed to submit credit information of its borrowers to any of the four CICs.

RBI conducted a statutory inspection of Urban Cooperative Bank regarding its financial position as of 31 March 2023. The inspection revealed that Urban Cooperative Bank had incurred capital expenditure without prior approval of RBI, violating the directions issued under the supervisory action framework (SAF). As a result, RBI imposed a penalty of Rs50,000 on Urban Cooperative Bank.

Sri Kalahasti Cooperative Town Bank was also penalised Rs50,000 for non-compliance with the provisions of Section 31 of the BR Act. RBI found out that the Bank had failed to submit its accounts and balance sheet together with the auditor's report for FY22-23 within the stipulated three months.

RBI says its action against these four cooperative banks and the NBFC is based on deficiencies in regulatory compliance and is not intended to pronounce on the validity of any transaction or agreement entered into by the banks with their customers.

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