1. Key Penalty Details
The Reserve Bank of India (RBI) imposed a monetary penalty on a Cooperative Bank for statutory non-compliance related to the management of unclaimed deposits.
- Entity Penalized: Rampur Jilla Sahkari Bank Ltd., Uttar Pradesh.
- Penalty Amount: ₹5,00,000 (Rupees Five Lakh only).
- Date of RBI Order: October 3, 2025.
- Regulatory Violation: Contravention of provisions of Section 26A read with Section 56 of the Banking Regulation Act, 1949 (BR Act).
- Specific Charge Sustained: Failure to transfer eligible unclaimed amounts to the “Depositor Education and Awareness (DEA) Fund” within the prescribed time.
- Inspection Authority: Statutory inspection conducted by NABARD with reference to the financial position as on March 31, 2024.
2. Root Cause Analysis (RCA)
Based on the sustained charge of non-transfer to the DEA Fund, the primary root cause is failure in the internal processes governing the identification and reporting of dormant accounts. Key contributing factors likely include:
Process Failure in Dormancy Tracking: The Core Banking System (CBS) or its auxiliary systems failed to accurately track accounts that completed the mandatory 10-year period of no operation, rendering them eligible for transfer to the DEA Fund.
Manual Oversight and Lack of Automation: Reliance on manual processes or spreadsheets for generating the list of eligible accounts, leading to errors, omissions, and delays in quarterly reporting and transfer cycles.
Inadequate Compliance Monitoring: Insufficient control checks by the Compliance and Internal Audit functions to ensure timely reconciliation and transfer before the regulatory deadline, suggesting a gap in the Three Lines of Defence framework.
Training and Awareness Gap: Key operational staff responsible for deposit reporting were likely unaware of the precise regulatory timelines and requirements of Section 26A of the BR Act and the DEA Fund Scheme, or did not prioritize its execution.
3. Preventive Controls & Corrective Actions
To prevent recurrence of similar violations, the following controls must be implemented immediately, focusing on automation, process integrity, and staff awareness:
- Automated DEA Fund Trigger: Implement an automated module within the CBS to flag accounts upon reaching the 7th year of inactivity and generate a mandatory transfer file upon completing the 10th year of inactivity.
- Quarterly Compliance Checklist: Mandate a rigorous quarterly compliance checklist and sign-off process by the Chief Compliance Officer (CCO) confirming successful transfer and reconciliation of all eligible amounts to the DEA Fund.
- Dedicated Reconciliation: Establish a dedicated process for reconciling the internal list of dormant accounts with the list reported to the RBI/NABARD, ensuring zero variance.
- Mandatory Annual Training: Institute mandatory annual compliance training for all relevant staff in Operations, Finance, and Compliance departments, focusing specifically on the Depositor Education and Awareness Fund Scheme, 2014, and related BR Act provisions.
- Internal Audit Mandate: Incorporate the timely and accurate transfer to the DEA Fund as a specific, high-priority audit point in the internal audit program, to be checked on a half-yearly basis.
4. Lessons Learned
This penalty underscores the RBI’s strict approach to statutory compliance, particularly concerning customer funds and regulatory timelines. The core lessons learned are:
- Technology is Non-Negotiable: Regulatory compliance, especially dealing with timelines and bulk data (like dormant accounts), cannot be reliably managed without robust, automated technology systems. Manual checks are inherently prone to error.
- Customer Protection Priority: The failure to transfer funds to the DEA Fund compromises the regulatory objective of ensuring that unclaimed funds are utilized for the benefit of depositors (education and awareness). This signals a weak commitment to customer-centric compliance.
- Size is Irrelevant: The RBI imposes penalties irrespective of the institution’s size (Cooperative Banks are equally scrutinized). A breach of core banking regulation (BR Act) is a serious supervisory finding regardless of the penalty amount.
- The Inspection Process Works: The statutory inspection conducted by NABARD (as mentioned in the release) successfully identified the deficiency, validating the supervisory mechanism’s effectiveness in maintaining regulatory discipline.