The Arni Co-operative Town Bank Limited
Penalty: ₹2.00 Lakh
Location
Tamil Nadu
Order Date
Nov 27, 2025
Inspection Position
March 31, 2024
Regulatory Act
Banking Regulation Act, 1949 (Section 47A(1)(c))
Key Non-Compliance Details
- Refund of Share Capital: Allowed refund to members despite CRAR being below regulatory minimum.
- Loan Sanctions (Share Linking): Sanctioned loans without adhering to share linking norms while CRAR was low.
- Nominal Membership: Sanctioned loans exceeding regulatory limits to nominal members.
- Gold Loans: Sanctioned gold loans under bullet repayment scheme beyond prescribed limits.
Root Cause Analysis (RCA)
| Observation | Probable Root Cause |
|---|---|
| Refund of share capital despite low CRAR | Lack of automated “Stop” triggers in the Core Banking Solution (CBS) when CRAR drops below threshold. Manual processing of refunds without verifying current capital position. |
| Loans to Nominal Members & Gold Loans > Limits | Inadequate parameterization of loan products in the system. Loan officers may have bypassed exposure limits due to lack of hard system blocks. |
Preventive Controls
- System Hard Stops: Implement hard validation rules in CBS to block share capital refunds if the previous quarter’s CRAR is below 9%.
- Exposure Limit Configuration: Configure product-level caps for “Nominal Members” and “Bullet Repayment Gold Loans” that cannot be overridden at the branch level.
- Share-Linking Logic: Automate the calculation of required shareholding linkage during the loan origination phase; the system should reject the application if the ratio is insufficient relative to CRAR.
Lessons Learnt
Financial health indicators (like CRAR) must be dynamically linked to operational privileges. When capital adequacy dips, the system must automatically restrict capital outflows (refunds) and risky asset creation (loans without sufficient share linkage).
RBI Press Release
The Kallidaikurichi Co-operative Urban Bank Limited
Penalty: ₹50,000
Location
Tamil Nadu
Order Date
Nov 27, 2025
Inspection Position
March 31, 2024
Regulatory Act
Banking Regulation Act, 1949 (Section 47A(1)(c))
Key Non-Compliance Details
- Refund of Share Capital: The bank allowed the refund of share capital to its members, despite its Capital to Risk (Weighted) Assets Ratio (CRAR) being less than the regulatory minimum.
Root Cause Analysis (RCA)
| Observation | Probable Root Cause |
|---|---|
| Capital Refund during financial stress | Operational teams likely treated share refunds as routine administrative tasks rather than capital-impacting financial transactions. Absence of a “Capital Health Check” step in the refund workflow. |
Preventive Controls
- Workflow modification: Introduce a mandatory “Maker-Checker” step for share capital refunds where the “Checker” is required to verify the latest CRAR report.
- Policy Training: Conduct training for front-office staff on the relationship between Share Capital and CRAR, emphasizing that share capital is not a standard deposit account.
- Periodic Audits: Monthly internal audit review of all capital outflows to ensure they align with the bank’s current capital adequacy status.
Lessons Learnt
Even smaller cooperative banks must treat Share Capital as a distinct instrument from deposits. Operational checklists must be updated immediately upon receipt of any adverse inspection findings regarding capital adequacy to prevent further erosion of the capital base.