1. Kolhapur District Central Co-operative Bank Ltd., Maharashtra
Key Details
| Penalty Amount | ₹2.10 Lakh |
|---|---|
| Order Date | December 22, 2025 |
| Violation Category | Contravention of Section 20 read with Section 56 of BR Act, 1949. |
| Specific Charge | Sanctioning a loan to a company in which one of the bank’s Directors stood as a guarantor. |
Root Cause Analysis (RCA)
- Data Gap in Core Banking: The Loan Origination System (LOS) likely lacked a comprehensive database of “Related Parties” (Directors and their interests) linked to the guarantor field.
- Manual Oversight: Reliance on manual declarations by borrowers/guarantors without independent system verification against the Board of Directors list.
- Conflict of Interest Check Failure: The credit appraisal memo failed to highlight the nexus between the guarantor and the Bank’s Board.
Preventive Controls
- System Hard Stop: Implement a mandatory “Director Check” in the CBS/LOS. If a guarantor’s PAN matches a Director’s PAN, the system must block the sanction.
- Regular Data Scrubbing: Monthly update of the “Restricted Entity List” (Directors, their relatives, and firms where they hold interest) circulated to all credit processing centers.
- Board Declaration: Mandatory annual declaration from Directors regarding their business interests and guarantees extended, integrated into the master customer database.
Lesson Learnt
Section 20 of the BR Act is a zero-tolerance compliance area. Banks must ensure that the “arm’s length” principle is technologically enforced, not just procedurally documented. A Director acting as a guarantor equates to indirect interest, which is strictly prohibited.
RBI Press Release
2. The Salem Urban Co-operative Bank Limited, Tamil Nadu
Key Details
| Penalty Amount | ₹50,000 |
|---|---|
| Order Date | December 26, 2025 |
| Violation Category | Non-compliance with ‘Framework for Compromise Settlements and Technical Write-offs’. |
| Specific Charge | Sanctioning non-agricultural loans to members who had previously availed compromise settlements without adhering to the minimum cooling period. |
Root Cause Analysis (RCA)
- Inadequate History Tracking: The loan processing system did not effectively flag “Past Write-off/Settlement” status for existing members applying for new loans.
- Cooling Period Ignorance: Credit officers may have lacked awareness of the specific regulatory “cooling period” (typically 12 months or more) required before fresh exposure.
- Siloed Data: The database of “Compromise Settlements” was likely not integrated with the “New Loan Application” module.
Preventive Controls
- Negative List Integration: Automate a “Cooling Period Check” where the system rejects applications if the Customer ID is linked to a settlement within the restricted timeframe.
- Policy Configuration: Hard-code the minimum cooling period (as per Board policy/RBI guidelines) into the loan sanctioning logic.
- Credit Report Verification: enhance credit report analysis to specifically look for “Settled” or “Written-off” flags in the trade lines.
Lesson Learnt
Compromise settlements are a concession provided to distressed borrowers. Re-lending to such borrowers without a mandatory cooling period erodes credit discipline and violates the prudent framework for resolution of stressed assets.
RBI Press Release
3. Valuecorp Securities & Finance Limited
Key Details
| Penalty Amount | ₹2.40 Lakh |
|---|---|
| Order Date | December 23, 2025 |
| Violation Category | Non-compliance with CIC Data Submission, Loan Exposure Transfer, and KYC Directions. |
| Specific Charges |
1. Failed to submit data to Credit Information Companies (CICs). 2. Transferred loan exposure to a non-permitted entity. 3. Failed to assign Unique Customer Identification Code (UCIC). 4. Failed to carry out risk categorization. |
Root Cause Analysis (RCA)
- Technology Gap: Absence of an automated API or batch process for monthly data submission to all four CICs.
- KYC Module Deficiency: The Core System lacked mandatory fields for “Risk Category” (High/Medium/Low) and UCIC generation logic, allowing account opening without these parameters.
- Process Ignorance: Transferring loans to an entity not permitted under RBI guidelines suggests a lack of legal/compliance review during portfolio sales/transfers.
Preventive Controls
- Mandatory System Fields: Make UCIC and Risk Categorization mandatory fields in the onboarding form; the system should not allow ‘Submit’ without them.
- Automated CIC Reporting: Deploy a CIC reporting tool that auto-generates files in the required format (TUDF) and uploads them monthly.
- Due Diligence Checklist: Create a legal checklist for loan transfers verifying the “Permitted Transferee” status before any assignment agreement is signed.
Lesson Learnt
Operational compliance (KYC, Reporting) is as critical as financial compliance. Failure to assign UCIC leads to fragmented customer views, and failure to report to CICs damages the credit ecosystem. These are foundational failures, not just procedural ones.
RBI Press Release
4. The District Co-operative Central Bank Ltd., Warangal, Telangana
Key Details
| Penalty Amount | ₹1.00 Lakh |
|---|---|
| Order Date | December 26, 2025 |
| Violation Category | Contravention of Section 20 read with Section 56 of BR Act. |
| Specific Charge | Sanctioned director-related loans. |
Root Cause Analysis (RCA)
- Definition Ambiguity: Failure to correctly identify “Director-related” entities (e.g., firms where a director is a partner or guarantor).
- Weak Internal Audit: Pre-disbursement audit failed to catch the nexus between the borrower and the Board of Directors.
- Governance Failure: The Board or Credit Committee sanctioned loans despite the conflict of interest, indicating a lapse in corporate governance.
Preventive Controls
- Conflict of Interest Policy: Strict implementation of a policy where Directors must recuse themselves from proceedings involving any entity they are remotely connected to.
- Independent Vetting: All loans above a certain threshold should undergo vetting by an independent compliance officer specifically for Section 20 compliance.
- Digital Mapping: Map all Directors and their declared interests in the system to trigger automatic alerts during loan application entry.
Lesson Learnt
Similar to the Kolhapur case, this reinforces that Director-related loans are a primary red flag for regulators. Co-operative banks must strictly segregate management (Board) from beneficiaries (Borrowers) to maintain the sanctity of public deposits.