1. The Arakonam Co-operative Urban Bank Limited, Tamil Nadu
| Penalty Amount | ₹2.50 Lakh Major Violation |
|---|---|
| Order Date | December 15, 2025 |
| Statutory Inspection | Reference Date: March 31, 2025 |
| Key Violations |
|
The violations suggest systemic gaps in both financial governance and operational compliance:
- Financial Governance: The failure to transfer profits to the Statutory Reserve indicates a lack of oversight in the finalization of the balance sheet and a disconnect between the accounting department and compliance regulations regarding Section 17 of the BR Act.
- Credit System Controls: Loan limits for nominal members and gold loans were breached likely due to manual tracking of exposure limits rather than hard-coded system caps in the Core Banking Solution (CBS).
- KYC Operations: Non-upload of records to CKYCR and opening non-compliant accounts point to a lack of “Maker-Checker” diligence and potential absence of automated API integration with CKYCR registries.
- CBS System Hard Stops: Configure the Core Banking Solution to automatically reject loan applications for nominal members or bullet repayment gold loans once the regulatory threshold is reached.
- Automated Accounting Triggers: Implement a mandatory checklist for the year-end financial closure process that requires sign-off on Statutory Reserve transfers before the balance sheet is frozen.
- KYC Integration: Integrate the account opening module directly with CKYCR APIs to ensure real-time uploading and validation. Disallow account activation until mandatory KYC fields are populated.
The accumulation of multiple penalties highlights that Operational Risk is as critical as Credit Risk. The bank must recognize that statutory obligations (like reserve transfers) are non-negotiable and cannot be overlooked during financial audits. Furthermore, relying on manual vigilance for loan limits is sustainable; technological constraints are required to ensure compliance.
RBI Press Release
2. The Tamilnadu Circle Postal Co-operative Bank Limited, Tamil Nadu
| Penalty Amount | ₹50,000 Moderate Violation |
|---|---|
| Order Date | December 15, 2025 |
| Statutory Inspection | Reference Date: March 31, 2025 |
| Key Violations |
|
The specific violation regarding advances to non-members stems from a failure to dynamically monitor the bank’s FSWM status:
- Status Awareness: The operational staff sanctioning loans may not have been aware that the bank’s FSWM status had changed or was not met, indicating a communication gap between the Risk/Compliance department and the Credit department.
- Policy Configuration: The bank’s credit policy for loans against deposits likely did not differentiate between members and non-members based on the current financial health indicators of the bank.
- Eligibility Flagging: Update the loan origination system to disable the “Non-Member Loan against Deposit” product code automatically if the bank’s FSWM status flag is set to “No” in the system parameters.
- Centralized Product Approval: Require a higher level of authorization (e.g., Head Office) for any loan sanctioned to non-members, ensuring a second layer of verification against FSWM criteria.
- Quarterly Review: Conduct a quarterly review of FSWM parameters and issue an internal circular confirming the bank’s eligibility to offer specific restricted products.
Privileges granted to UCBs, such as lending to non-members, are conditional on financial health. Banks must understand that regulatory relaxations are dynamic and linked to performance. A dip in financial metrics (like NPA or CRAR) immediately restricts business scope, and internal processes must be agile enough to reflect these restrictions instantly.