RBI Penalties Report – 4th November 2025

The Satara Sahakari Bank Ltd., Mumbai

Deficiencies in Regulatory Compliance

1. Refunded share capital despite its “CRAR (Capital to Risk-Weighted Assets Ratio) being less than the regulatory minimum”.
2. Breached “prudential single borrower exposure limit” in certain instances.

Root Cause Analysis (RCA)

• Capital Adequacy: Failure to establish or enforce “robust internal controls” linking the CRAR status to treasury or member services operations. Share capital transactions were processed without an automated, real-time check against the required minimum CRAR.
• Exposure Limit: “Inadequate pre-sanction checks” and “systemic limitations” within the Loan Management System (LMS) to automatically flag or restrict disbursements that would result in a breach of the prudential limit. This points to a weak calculation and monitoring framework.

Preventive Controls

• Implement a “hard-coded, system-driven block” on all share capital refunds if the latest certified CRAR is below the regulatory threshold.
• Integrate the “Single Borrower Exposure Limit” as a dynamic calculation within the LMS. The system must prevent the sanctioning or disbursement of any credit that would breach the limit based on the bank’s current Capital Funds position.
• Mandate “independent verification” and sign-off on the exposure calculation for all large credit proposals.

Lesson Learnt

Compliance with “prudential norms” is foundational for financial stability. Relying on “automated checks and balances” for metrics like CRAR and exposure limits is crucial to prevent operational oversights and ensure credit risk concentration remains within acceptable regulatory parameters.

RBI Press Release

Latur District Central Co-operative Bank Ltd., Maharashtra

Deficiencies in Regulatory Compliance

1. Sanctioned and “renewed certain director related loans”, violating Section 20 read with Section 56 of the BR Act.
2. Failed to “upload the KYC records” of certain customers onto the Central KYC Records Registry (CKYCR) within the prescribed timeline.

Root Cause Analysis (RCA)

• Director Loans: “Systemic failure” to enforce the statutory prohibition on related-party lending. The renewal of existing prohibited loans highlights a sustained disregard for the BR Act and a weak ethical/compliance culture.
• CKYCR: “Operational inefficiency and lack of automation”. Failure to map the customer onboarding process to the CKYCR requirement, resulting in a backlog and manual delays, suggesting insufficient IT integration with the CKYCR portal.

Preventive Controls

• Implement a “mandatory “related-party check”” during loan origination with a “hard-stop” for transactions prohibited under Section 20 of the BR Act.
• Establish an “automated, daily batch process” to upload new and updated KYC records to CKYCR directly from the core banking system.
• An internal “alert system” must notify the Compliance Officer of any KYC record pending CKYCR upload for more than 7 days.

Lesson Learnt

The “statutory prohibition” on director-related loans must be absolute and non-negotiable, enforced through stringent internal audits and system checks. Furthermore, “timely CKYCR submission” is a critical, non-negotiable obligation for contributing to the national AML/CFT framework.

RBI Press Release

Parbhani District Central Cooperative Bank Ltd., Maharashtra

Deficiencies in Regulatory Compliance

1. Sanctioned “certain director related loans”.
2. Failed to put in place a “robust software to throw alerts” when transactions were inconsistent with risk categorization and updated customer profiles (Suspicious Transaction Monitoring).

Root Cause Analysis (RCA)

• Director Loans: Similar to Latur DCCB, the core issue is a “breakdown in governance and credit policy enforcement” regarding conflict-of-interest lending.
• Transaction Monitoring: “Insufficient investment in AML technology”. The absence of automated, risk-based alerts indicates that the transactional monitoring system was not integrated with the customer’s risk profile (as determined by KYC), rendering the bank incapable of effectively identifying and reporting suspicious transactions.

Preventive Controls

• Implement a “zero-tolerance policy” for Section 20 contraventions, backed by regular, independent checks of director and director-related accounts.
• “Procure and implement a dedicated Transaction Monitoring System (TMS)” capable of behavior-based analysis and generation of automated alerts when transactions deviate from the customer’s expected activity (linked to their KYC risk profile).
• Ensure the TMS rules engine is “regularly tuned and updated” to meet evolving AML/CFT guidance.

Lesson Learnt

Compliance is a function of both “policy adherence” (no director loans) and “technological capability” (robust AML monitoring). For effective AML/CFT compliance, “manual monitoring must be replaced by sophisticated, risk-based Transaction Monitoring Systems” that integrate KYC data for context.

RBI Press Release

Viva Home Finance Limited, Palghar (HFC)

Deficiencies in Regulatory Compliance

Failed to “obtain prior written permission of RBI” for the appointment of a Whole-time Director, which triggered the “change of more than 30% of the Directors excluding Independent Directors” clause under HFC directions.

Root Cause Analysis (RCA)

• Procedural Oversight: A “lack of diligence and awareness” within the Board Secretariat and Compliance function regarding the specific RBI requirement for *prior* written approval when director changes cross the defined threshold for a change in management.
• Process Gap: Failure to incorporate the RBI’s “Prior Approval Checklist” into the standard corporate action workflow for key managerial personnel appointments.

Preventive Controls

• Establish a “mandatory Regulatory Clearance Checklist” for all Board appointments. This checklist must explicitly calculate the percentage change in directors (excluding Independent Directors).
• Require the “submission of a formal application to RBI” and the receipt of “prior written permission” before finalizing or announcing any appointment that meets the “change in management” criteria.
• Conduct focused training for the Board and Key Managerial Personnel on the corporate governance requirements outlined in the HFC Directions, 2021.

Lesson Learnt

Regulatory oversight for Housing Finance Companies (HFCs) is stringent, particularly concerning “governance and changes in key personnel”. All procedural requirements, especially those requiring “prior regulatory approval” (like the appointment of a Whole-time Director if it affects management control), must be treated as a “non-negotiable prerequisite”.

RBI Press Release