The Reserve Bank of India (RBI) has taken a firm stance on ensuring regulatory compliance within the banking sector. On October 17, 2023, RBI ordered a significant monetary penalty of ₹3.95 crore on Kotak Mahindra Bank Limited for its non-compliance with various RBI directions related to risk management, code of conduct in outsourcing financial services, recovery agents, customer service, and statutory restrictions on loans and advances. This penalty has been imposed under the powers granted to RBI by the Banking Regulation Act, 1949, specifically in accordance with Section 47A(1)(c) and Sections 46(4)(i).
It’s important to note that this action from RBI is a response to shortcomings in regulatory compliance and does not serve as a judgment on the validity of any transactions or agreements between the bank and its customers.
The Statutory Inspection for Supervisory Evaluation (ISE 2022) was carried out by RBI to assess the bank’s financial position as of March 31, 2022. During the examination of observations from the Risk Assessment Report/Inspection Report related to ISE 2022, as well as all associated correspondence, it was revealed that Kotak Mahindra Bank had not fully complied with the aforementioned directions. Specifically, the bank (i) failed to conduct an annual review and due diligence of its service providers, (ii) did not ensure that customers were not contacted between 7 pm and 7 am, (iii) imposed interest from the disbursement due date instead of the actual disbursement date, contrary to the terms and conditions of the loan agreement, and (iv) levied foreclosure charges even when there was no clause in the loan agreement authorizing the levy of prepayment penalties on loans recalled or foreclosed by the bank.
Consequently, RBI issued a notice to the bank, requesting an explanation as to why a penalty should not be imposed for its failure to comply with the mentioned directions.
After a thorough examination of the bank’s response to the notice, additional information provided by the bank, and oral submissions made during the personal hearing, RBI concluded that the allegations of non-compliance with the specified RBI directions were substantiated, and thus, the imposition of a monetary penalty was warranted.
