1. Key Details
- Bank Name: UCO Bank.
- Penalty Amount: ₹38.60 lakh (Rupees Thirty-Eight Lakh Sixty Thousand only).
- Date of Order: February 16, 2026.
- Trigger for Action: The penalty stems from findings during the Statutory Inspection for Supervisory Evaluation (ISE 2025) conducted by the RBI, which evaluated the bank’s financial position as of March 31, 2025.
- Statutory Basis: The penalty was imposed under the provisions of section 47A(1)(c) read with section 46(4)(i) and 51(1) of the Banking Regulation Act, 1949, as well as section 25(1)(iii) read with section 23(4) of the Credit Information Companies (Regulation) Act, 2005.
Specific Violations Sustained:
- Savings Interest: The bank failed to pay interest on certain Savings Bank Deposit accounts.
- SHG Data Reporting: The bank did not report credit-related member-level data for Self Help Groups (SHGs) to Credit Information Companies (CICs).
- Locker Rent Refunds: The bank failed to refund the proportionate amount of advance locker rent collected from certain customers who prematurely surrendered their lockers.
2. Root Cause Analysis (RCA)
Note: While the RBI notification outlines the breaches, the following RCA highlights the typical operational and systemic failures that lead to such specific compliance gaps in banking operations.
- System Parameterization Lapses: The non-payment of interest on specific savings accounts usually points to a configuration error within the Core Banking System (CBS). Certain sub-categories or dormant account types might have been inadvertently excluded from the automated periodic interest calculation scripts.
- Data Granularity and Integration Gaps: The failure to report SHG member-level data suggests that the bank’s Loan Origination System (LOS) or CBS was likely configured to capture SHGs at an aggregate group level rather than mandating the capture of individual member KYC and credit data for automated API transmission to CICs.
- Reliance on Manual Workflows: Locker rent refunds are historically heavily reliant on branch-level manual processing. Without a system-driven prompt in the locker management module calculating and triggering an automatic refund upon closure, staff likely missed processing the manual vouchers for proportionate advance rent.
3. Preventive Controls
To prevent recurrence, the bank should implement the following systemic controls:
- Automated CBS Interest Reconciliations: Deploy comprehensive automated maker-checker rules and backend reconciliation reports to ensure 100% of active and eligible savings accounts are swept during periodic interest payout cycles without manual intervention.
- System-Driven Locker Workflows: Re-engineer the locker management module within the CBS. When a locker status is changed to “surrendered” or “closed,” the system must automatically calculate the prorated advance rent and credit it directly to the customer’s linked operative account.
- Mandatory Data Fields for SHG Onboarding: Enforce hard stops in the account opening and loan disbursement journeys, making the capture of individual member-level details mandatory for SHGs. Couple this with automated data pipelines directly linked to Credit Information Companies to bypass manual reporting.
- Targeted Concurrent Audits: Update the internal audit checklists so that concurrent branch auditors specifically sample premature locker surrenders and verify the corresponding rent refund trails.
4. Lessons Learnt
- Customer Detriment Carries High Regulatory Risk: Compliance failures that result in direct financial detriment to the consumer—such as unpaid savings interest or unrefunded locker rent—are dealt with strictly by the RBI and directly impact the bank’s supervisory ratings.
- Manual Compliance is Unsustainable: Regulatory directives cannot be managed via circulars and manual branch operations. They must be hardcoded into digital workflows to eliminate human error.
- Focus on Granular Data Governance: The regulator’s focus on SHG member-level reporting underscores a shift toward highly granular data monitoring. Banks must ensure their data architecture can capture and report at the lowest possible entity level, not just aggregate portfolios.
Disclaimer: This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.