The Reserve Bank of India (RBI) has taken a firm stance by imposing a substantial monetary penalty of ₹1 Crore (Rupees One Crore only) on Union Bank of India. This penalty was levied due to the bank’s non-compliance with directives issued by the RBI regarding ‘Loans and Advances – Statutory and Other Restrictions.’ The RBI exercised its powers under the provisions of Section 47 A (1) (c), coupled with Sections 46 (4) (i) and 51(1) of the Banking Regulation Act, 1949, to enforce this penalty.
It is essential to emphasize that this penalty is a consequence of regulatory compliance shortcomings and does not cast judgment on the validity of the bank’s transactions or agreements with its customers.
Background
RBI conducted a Statutory Inspection for Supervisory Evaluation (ISE 2021) of Union Bank of India, referencing its financial status as of March 31, 2021. During this inspection, the Risk Assessment Report and Inspection Report pertaining to ISE 2021 were scrutinized, along with all related correspondence. This examination revealed non-compliance with the directives in question. Specifically, the bank had sanctioned a term loan to a Corporation under the following circumstances: (i) in lieu of or to substitute budgetary resources designated for certain projects, (ii) without conducting due diligence on the viability and bankability of the projects to ensure that revenue streams from the projects could cover debt servicing obligations, and (iii) with the repayment/servicing made from budgetary resources. Consequently, a notice was issued to the bank, asking it to provide reasons why a penalty should not be imposed for its failure to adhere to the said directive.
After careful consideration of the bank’s response to the notice and oral submissions made during the personal hearing, the RBI determined that the charges of non-compliance with the specified RBI directives were well-founded, justifying the imposition of a monetary penalty on the bank.
In Summary
Union Bank of India has been subject to a significant penalty of ₹1 Crore by the Reserve Bank of India for non-compliance with RBI directives related to ‘Loans and Advances – Statutory and Other Restrictions.’
