The Reserve Bank of India (RBI) imposed a monetary penalty on CSB Bank Limited following the Statutory Inspection for Supervisory Evaluation (ISE 2025), which was conducted with reference to the bank’s financial position as of March 31, 2025. The detailed compliance breakdown is outlined below.
Key Details
| Bank Name | CSB Bank Limited |
| Penalty Amount | ₹63.60 lakh (Rupees Sixty Three Lakh Sixty Thousand only) |
| Date of Order | February 06, 2026 |
| Statutory Provision | Section 47A(1)(c) read with section 46(4)(i) of the Banking Regulation Act, 1949 |
| Violated Directions | ‘Scope of activities to be undertaken of Business Correspondents (BCs)’ and ‘Customer Service in Banks’ |
Root Cause Analysis (RCA)
Based on the RBI’s supervisory findings and the subsequent show-cause notice, the penalty was warranted by two primary sustained charges:
- Business Correspondent Scope Violations: The bank entered into an arrangement with BCs for undertaking activities. However, these specific activities are not covered within the authorized scope of activities that can be undertaken by BCs.
- Deficient Customer Fee Transparency: The bank levied charges in certain savings bank accounts. This deduction was executed without ensuring that customers were made aware of such charges upfront.
Preventive Controls
To mitigate the risk of recurrence and strengthen systemic compliance, the following operational controls should be implemented:
- Enhanced Contractual Vetting: Mandate a strict legal and compliance review for all third-party and Business Correspondent agreements to ensure outsourced tasks map directly to explicitly permitted RBI guidelines before execution.
- Automated Transparency Safeguards: Implement IT system constraints within the core banking software that block the automated deduction of non-standard account charges until a digital or physical record of upfront customer notification is actively logged.
- Routine Compliance Audits: Expand internal audit frameworks to proactively test both vendor activities and customer-facing fee structures against the latest regulatory Master Directions.
Lessons Learnt
- Strict Adherence to Outsourcing Boundaries: Expanding the operational scope of Business Correspondents beyond regulatory limits exposes the bank to direct compliance risks. Regulatory boundaries must always supersede operational convenience.
- Customer Awareness is Mandatory: Unilaterally levying account charges compromises consumer trust and violates core customer service directives. Upfront, documented communication is an absolute regulatory necessity.
- Compliance is Distinct from Contract Validity: While regulatory actions heavily penalize compliance deficiencies, such actions are not intended to pronounce upon the overall validity of any transaction or agreement entered into by the bank with its customers.
- Lingering Actionable Risk: The imposition of this monetary penalty addresses specific procedural failures but is issued without prejudice to any other subsequent action that may be initiated by the RBI against the bank. Corrective measures must be swift.