RBI Imposes Rs2.60 lakh Penalties on 3 Cooperative Banks for Not Following Rules & Regulations

Moneylife Digital Team 26 October 2023

Investor Interest

Reserve Bank of India (RBI) has imposed monetary penalties on three cooperative banks for violating various rules and regulations prescribed by the regulator. The banks penalised are Ghatal Peoples Cooperative Bank Ltd from West Bengal, District Central Cooperative Bank Ltd from Bihar and The Manjeri Cooperative Urban Bank Ltd from Kerala.

Ghatal Peoples Cooperative Bank is penalised with Rs1.50 lakh for non-compliance with directions issued by RBI on membership of credit information companies (CICs), exposure norms and statutory or other restrictions - urban cooperative Bank (UCBs), know your customer (KYC) directions and for contravention of the provisions of section 26-A of the Banking Regulation Act, 1949 (BR Act) on the depositor education and awareness fund (DEAF) scheme and Section 26A of BR Act on operational guidelines.

The statutory inspection of Ghatal Peoples Cooperative Bank conducted by RBI concerning its financial position as of 31 March 2022, and examination of the inspection report (IR), risk assessment report (RAR) and all correspondence related revealed that the Bank failed to upload credit information to CICs and breached prudential inter-bank counter-party exposure limit. The Bank did not place a system of periodic review of risk categorisation of accounts and did not transfer all eligible amounts to the DEAF.

Bihar-based District Central Cooperative Bank was imposed with a monetary penalty of Rs1 lakh for non-compliance with RBI directions on KYC. The Bank had failed to put in place a system of periodic review of risk categorisation of accounts.

Further, Manjeri Cooperative Urban Bank was finned Rs10,000 for non-compliance with the directions issued by RBI on customer protection on limiting the liability of customers of cooperative banks in unauthorised electronic banking transactions, basic cyber security framework for primary UCBs and comprehensive cyber security framework for primary UCBs.

A cyber security incident was reported by Manjeri Cooperative Urban Bank regarding a compromise of the mobile banking application of the Bank by fraudsters. Subsequent information technology examination (ITE) conducted by RBI revealed several lapses in the cyber security framework of the Bank.

RBI says, "After considering the reply of all the banks to the notices, submissions made during the personal hearing, and additional information furnished pursuant to the personal hearing, RBI came to the conclusion that the charges of non-compliance with RBI directions were substantiated and warranted imposition of monetary penalty."

In all three cases, RBI said penalties are based on deficiencies in regulatory compliance and are not intended to pronounce upon the validity of any transaction or agreement they entered into with their customers.

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