1. The Bharat Co-operative Bank Limited, Bengaluru, Karnataka
Key Details
- Penalty Amount: ₹50,000
- Date of Order: August 19, 2025
- Reason for Penalty: Non-compliance with specific directions under the ‘Supervisory Action Framework (SAF)’.
Root Cause Analysis (RCA)
The bank’s statutory inspection, based on its financial position as of March 31, 2024, revealed several deficiencies in its adherence to the RBI’s directions under the SAF. The sustained charges against the bank included:
- Sanctioning or renewing credit facilities to sectors with high levels of defaults or Non-Performing Assets (NPAs).
- Sanctioning and disbursing new loans and advances that were not backed by the collateral security of term deposits.
- Offering deposit interest rates that were higher than those provided by the State Bank of India.
Preventive Controls
To prevent similar violations, the bank must implement stricter internal controls. This includes:
- Loan Sanctioning: Establishing a more robust credit risk assessment framework to avoid lending to high-risk sectors or individuals with a history of defaults.
- Collateral Management: Enforcing mandatory collateral requirements, particularly for new loans and advances, in line with regulatory guidelines.
- Interest Rate Policy: Ensuring that the interest rates offered on deposits are in accordance with the prevailing market rates and RBI directives, specifically by aligning with the rates of major banks like the State Bank of India.
Lessons Learned
A key takeaway is the importance of a bank’s adherence to all aspects of the Supervisory Action Framework (SAF). Deviations from the framework can lead to significant financial and reputational consequences. The bank’s failure to maintain a disciplined approach to lending and deposit rates demonstrated a lack of sound risk management practices.
RBI Press Release
2. The Anand Mercantile Co-operative Bank Ltd., Anand, Gujarat
Key Details
- Penalty Amount: ₹2 lakh
- Date of Order: August 21, 2025
- Reason for Penalty: Non-compliance with RBI guidelines on ‘Managing Risk in Outsourcing of Financial Services by Co-operative Banks’ and ‘Know Your Customer (KYC)’.
Root Cause Analysis (RCA)
A statutory inspection as of March 31, 2024, identified two specific sustained charges:
- The bank had outsourced its core management function of internal audit, which is a violation of the RBI’s outsourcing guidelines.
- The bank failed to conduct a periodic review of the risk categorization of certain accounts at least once every six months, a requirement under KYC norms.
Preventive Controls
The bank needs to take immediate steps to address these issues:
- Internal Audit: The internal audit function must be managed in-house and not outsourced to external agencies. This ensures the integrity and independence of the bank’s internal controls.
- KYC Compliance: A strict schedule for the periodic review of customer accounts must be established and followed. This includes implementing a robust system to ensure that all accounts, especially those identified as high-risk, are reviewed at the prescribed frequency to mitigate financial crime risks.
Lessons Learned
This case highlights the criticality of maintaining core functions internally and strictly adhering to KYC guidelines. Outsourcing an internal audit can compromise a bank’s oversight capabilities, while failure to regularly review customer accounts creates vulnerabilities to financial crimes. A strong compliance culture and robust internal controls are essential to avoid such penalties.
RBI Press Release
3. The Bellary District Co-operative Central Bank Limited, Karnataka
Key Details
- Penalty Amount: ₹1.50 lakh
- Date of Order: August 19, 2025
- Reason for Penalty: Contravention of provisions of Sections 19 and 20, read with Section 56 of the Banking Regulation Act, 1949.
Root Cause Analysis (RCA)
A statutory inspection, conducted by NABARD with reference to the bank’s financial position as of March 31, 2024, found that the bank had:
- Sanctioned a loan to one of its directors.
- Held shares in another co-operative society in contravention of the Banking Regulation Act.
Preventive Controls
To prevent such contraventions in the future, the bank must:
- Director Loan Policy: Implement a strict policy prohibiting the sanctioning of loans to its directors, in line with the Banking Regulation Act.
- Investment Restrictions: Ensure that all investments, particularly the holding of shares in other cooperative societies, comply with the specific provisions of the Banking Regulation Act.
Lessons Learned
This penalty underscores the importance of a bank’s adherence to the fundamental principles of the Banking Regulation Act. The prohibition of loans to directors and restrictions on share holdings are critical provisions designed to prevent conflicts of interest and maintain financial prudence.
RBI Press Release
4. The Kalaburagi and Yadgir District Co-operative Central Bank Limited, Karnataka
Key Details
- Penalty Amount: ₹50,000
- Date of Order: August 19, 2025
- Reason for Penalty: Non-compliance with RBI directions on ‘Know Your Customer (KYC)’.
Root Cause Analysis (RCA)
The bank’s statutory inspection, conducted by NABARD with reference to its financial position as of March 31, 2024, revealed a specific failure:
- The bank failed to upload the KYC records of its customers onto the Central KYC Records Registry (CKYCR) within the required timeframe.
Preventive Controls
To prevent future KYC-related penalties, the bank must:
- CKYCR Upload Process: Establish an efficient and timely process for uploading KYC records to the CKYCR.
- Training and Audits: Provide continuous training to staff on KYC procedures and conduct regular internal audits to ensure all records are being uploaded correctly and on schedule.
Lessons Learned
This case highlights the importance of not only collecting KYC information but also ensuring its timely and accurate submission to the relevant central registry. A failure in this procedural step, while seemingly minor, can lead to penalties and compromise the integrity of the national KYC system. It demonstrates that strict adherence to regulatory deadlines is as crucial as the compliance process itself.
RBI Press Release
5. The Dharmapuri District Central Co-operative Bank Ltd., Tamil Nadu
Key Details
- Penalty Amount: ₹1 lakh
- Date of Order: August 19, 2025
- Reason for Penalty: Contravention of provisions of Section 20, read with Section 56 of the Banking Regulation Act, 1949.
Root Cause Analysis (RCA)
A statutory inspection, conducted by NABARD based on the bank’s financial position as of March 31, 2024, found that the bank had:
- Sanctioned loans to its directors.
Preventive Controls
To avoid similar violations, the bank should:
- Policy Enforcement: Prohibit and enforce a strict ban on sanctioning loans to its directors, as this is a direct contravention of the Banking Regulation Act.
- Regulatory Training: Provide ongoing training to its board and senior management on the provisions of the Banking Regulation Act, particularly those related to conflicts of interest and internal lending.
Lessons Learned
This penalty serves as a powerful reminder of the importance of sound corporate governance. The prohibition against lending to directors is a foundational principle of banking regulation, designed to prevent self-dealing and protect the interests of the bank and its depositors. This incident underscores that even a single contravention of a core regulatory principle can result in a significant penalty.