RBI Penalty Report – 15th December 2025 | The Kovilpatti Co-operative Urban Bank Limited

Penalty Snapshot: The Kovilpatti Co-operative Urban Bank Ltd

The Violation

• The bank refunded share capital to members and sanctioned new loans despite its CRAR being below the regulatory minimum.
• This violated RBI’s prudential norms on linking shareholding to borrowing.

Root Cause Analysis (RCA)

• System Gap: Lack of automated “hard stops” in the Core Banking Solution (CBS) to prevent capital outflows when CRAR is critical.
• Process Failure: Operational staff prioritized member requests over solvency metrics.

Preventive Controls

• IT Control: Configure CBS to auto-reject share refund requests if CRAR < 9%.
• Process: Mandate a “Capital Health Check” certification before sanctioning any new credit limits.

Key Lesson

• Solvency > Liquidity: Regulatory capital health requirements legally supersede cooperative by-laws regarding share refunds.

RBI Press Release