In a major embarrassment for India’s leading private sector bank ICICI Bank, the RBI has imposed a record penalty of nearly Rs 12.2 crore on it for violation of lending rules and delays in reporting fraud.
RBI inspected the books of ICICI Bank in 2020 and 2021 to evaluate its financial status, during which it found that the bank had given loans to companies where two of the lender’s directors held board positions — in violation of RBI guidelines. The bank also marketed and sold non-financial products, which are outside the remit of a commercial bank. The bank also failed to report frauds to the RBI in time. Following the detection of these irregularities, RBI served the bank a show-cause notice.
The penalty on ICICI Bank is bigger than the Rs 10-crore fine imposed on HDFC Bank in May 2021 for irregularities in auto loans. The penalty is also higher than the total fines levied on private banks in FY23, totalling Rs 12.17 crore.
“After considering the bank’s reply to the notice, oral submissions made during the personal hearing and additional submissions made by it, RBI came to the conclusion that the charge of non-compliance with the provisions of the Banking Regulation Act and RBI directions was substantiated and warranted imposition of monetary penalty on the bank,” the central bank said.
The regulator has also fined Kotak Mahindra Bank nearly Rs 4 crore for violating rules on risk management, outsourcing, recovery agents, and loan management.
RBI inspected Kotak Bank’s financial position as of March 2022 and found multiple irregularities: The bank did not review or check the operations of its service providers. The bank had also violated RBI directions that customers should not be contacted after 7pm and before 7am for loan recovery.
Other violations of consumer protection norms included charging interest from the date of loan approval rather than the date of actual disbursement, which violates loan terms. The private bank was found to be levying a prepayment penalty on small borrowers even though the terms of the loan did not have any provision for such fines.
After following the due process of issuing a show-cause notice to Kotak Bank, RBI decided that the charges of non-compliance with RBI directions was substantiated and warranted the imposition of penalty on the bank.