RBI Imposes Rs5.75 Lakh Penalty on 5 Cooperative Banks

Moneylife Digital Team 30 September 2025

Investor Interest

Reserve Bank of India (RBI) has imposed a penalty of Rs5.75 lakh on five cooperative banks for non-compliance with the directions issued by the banking regulator. The highest penalty of Rs2.25 lakh has been imposed on Beed District Central Cooperative Bank Ltd from Maharashtra.

Other banks penalised by the RBI include: Gujarat-based Panchsheel Mercantile Cooperative Bank Ltd, Kerala-based Sultan’s Battery Cooperative Urban Bank Ltd and Nilambur Cooperative Urban Bank Ltd, and Tamil Nadu-based Kamaraj Cooperative Town Bank Ltd.

Beed District Central Cooperative Bank has been penalised for contravention of provisions of Section 26A of the Banking Regulation Act, 1949 (BR Act) and non-compliance with certain directions issued by RBI on membership of credit information companies (CICs) by cooperative banks and know-your-customer (KYC) requirements.

RBI's statutory inspection found that Beed District Central Cooperative Bank had failed to transfer eligible unclaimed amounts to the Depositor Education and Awareness Fund (DEA Fund) within the prescribed time, did not submit customer credit information to all four credit information companies (CICs) and omitted to carry out the required customer due diligence (CDD) procedures while opening certain accounts.

Kamaraj Cooperative Town Bank has been fined Rs 1 lakh for non-compliance with RBI directions under the supervisory action framework (SAF). The lender failed to reduce the single borrower exposure limit for fresh loans by 50% of the regulatory limit, sanctioned and disbursed loans without collateral such as term deposits, NSCs (National Saving Certificates), KVPs (Kisan Vikas Patras) or insurance policies and expanded its balance sheet and deposit size beyond prescribed limits.

RBI also inspected Panchsheel Mercantile Cooperative and found out that the lender had failed to enable its customers to instantly respond by 'Reply' to the SMS alerts to notify the objection towards unauthorised electronic banking transactions, if any.

As a result, RBI imposed a penalty of Rs1 lakh on Panchsheel Mercantile Cooperative Bank.

Further, Sultan’s Battery Cooperative Urban Bank has been penalised Rs1 lakh for non-compliance with RBI directions regarding loans and advances to directors, their relatives and firms or concerns in which they are interested. The lender had sanctioned loans to directors in violation of these guidelines.

Kerala-based Nilambur Cooperative Urban Bank has been penalised Rs50,000 for non-compliance with RBI directions on interest rates for cooperative banks. The lender had offered higher interest rates on non-resident (external) rupee deposits compared to corresponding domestic term deposits.

The central bank says, "After considering the reply and oral submissions of all banks during the personal hearing, RBI concluded that the charges of non-compliance with RBI directions were substantiated and warranted imposition of a monetary penalty."

In all five cases, RBI says the penalties are based on deficiencies in regulatory compliance and are not intended to be pronounced on the validity of any transaction or agreement they entered with their customers.

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