Key Details
The Reserve Bank of India (RBI) has fined Ayodhya Finlease Limited for ₹1 lakh (Rupees One Lakh). The penalty was imposed by an order dated August 14, 2025. The fine was issued for the company’s non-compliance with certain provisions of the ‘Master Direction Non-Banking Financial Company Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016’. This was read in conjunction with the ‘Reserve Bank of India (Non-Banking Financial Company Scale Based Regulation) Directions, 2023’. The penalty was imposed using the powers granted to the RBI under Section 58G(1)(b) read with Section 58B(5)(aa) of the Reserve Bank of India Act, 1934.
The specific sustained charge against the company was its failure to get prior written permission from the RBI for a change in shareholding that was more than 26% of its paid-up equity capital. The RBI came to this conclusion after reviewing the company’s reply to a show-cause notice and considering oral submissions made during a personal hearing. The RBI’s action is based solely on deficiencies in regulatory compliance and doesn’t comment on the validity of any of the company’s transactions or agreements with its customers.
Root Cause Analysis (RCA)
A root cause analysis is a structured, data-driven process that identifies the fundamental causes of problems to implement long-term solutions, not just treat symptoms 🕵️♀️. The failure by Ayodhya Finlease Limited to get prior written RBI permission for a change in its shareholding suggests a potential breakdown in its internal governance and compliance processes. The root cause is likely not a single event, but a systemic issue. Possible root causes may include:
- Lack of Awareness or Knowledge: The company may have failed to adequately understand the specific regulatory requirements related to changes in shareholding for Non-Banking Financial Companies (NBFCs).
- Weak Internal Controls: The company may not have had a robust system in place to monitor significant changes in its shareholding. A breakdown in internal controls could have allowed the change to occur without being flagged for the required regulatory approval.
- Inadequate Communication: There could have been a failure in communication between the company’s legal, compliance, and corporate governance teams. This could have resulted in the necessary regulatory steps not being taken before the shareholding change was finalized.
Preventive Controls
Preventive controls are designed to stop problems from happening in the first place 🛡️. To avoid future penalties and non-compliance, Ayodhya Finlease Limited should implement the following preventive controls:
- Policy and Procedure Enhancement: Develop and enforce a clear, comprehensive policy that outlines the process for any change in shareholding. The policy must explicitly state the requirement to obtain prior written permission from the RBI for changes exceeding the 26% threshold.
- Automated Monitoring System: Implement a system to continuously monitor shareholding changes. This system should automatically generate an alert when shareholding approaches or exceeds a specified percentage, like 25%, to ensure timely action before the 26% limit is breached.
- Role-Based Access and Segregation of Duties: Ensure that the responsibility for monitoring shareholding and initiating regulatory communication is assigned to a specific, trained team. This segregation of duties would prevent a single individual from being able to authorize and execute a shareholding change without the necessary compliance checks and approvals.
Lessons Learned
The RBI’s penalty serves as a clear lesson for Ayodhya Finlease Limited and other financial institutions. Key takeaways include:
- Compliance is Non-Negotiable: Regulatory compliance is not an optional add-on; it is a fundamental part of a financial institution’s operations. Failure to comply, even if unintentional, can result in monetary penalties and reputational damage.
- Proactive vs. Reactive Compliance: Companies must shift from a reactive to a proactive compliance model. Instead of simply reacting to regulatory notices, institutions should have systems and controls in place to anticipate and prevent non-compliance. * Governance, Risk, and Compliance (GRC) Integration: A strong GRC framework is crucial. The governance structure, risk management practices, and compliance functions must be integrated to ensure all regulatory requirements, like the need for prior RBI approval on shareholding changes, are met consistently.