RBI Imposes Rs8 Lakh Penalty on 3 Cooperative Banks and Maxvalue Credits and Investments

Moneylife Digital Team 29 November 2024

Investor Interest

Reserve Bank of India (RBI) has imposed penalties of Rs8 lakh on a non-banking financial company (NBFC) and three cooperative banks for failing to comply with the directions issued by the banking regulator. The highest penalty of Rs4.50 lakh was levied against Maxvalue Credits and Investments Ltd, an NBFC from Kerala.

The other entities penalised by RBI are Periyakulam Cooperative Urban Bank Ltd from Tamil Nadu and, Kanara District Central Cooperative Bank Ltd and Raichur District Central Cooperative Bank Ltd from Karnataka.

Maxvalue Credits and Investments has been penalised for non-compliance with several directions issued by RBI related to NBFCs. These directions include the guidelines for systemically important non-deposit-taking companies and deposit-taking companies Reserve Bank Directions, 2016, and the NBFC Acceptance of Public Deposits RBI Directions, 2016.

RBI's statutory inspection found that Maxvalue Credits and Investments failed to seek prior written permission from RBI for a change in its shareholding that exceeded 26% of the paid-up equity capital. Additionally, the NBFC redeemed subordinated debts without RBI consent and accessed public deposits in the form of subordinated debts and non-convertible debentures, despite being a non-deposit taking NBFC. It also did not make certain required disclosures in its annual financial statements.

Periyakulam Cooperative Urban Bank has been penalised Rs2 lakh for failing to comply with specific directions issued by RBI under the supervisory action framework (SAF). The lender also violated regulations concerning the issuance and regulation of share capital and securities for primary urban cooperative banks (UCBs), as well as prudential norms on capital adequacy for UCBs.

RBI found that Periyakulam Cooperative Urban Bank had sanctioned loans exceeding the eligible single-borrower exposure limit, approved fresh loans with risk weights exceeding 100%, and offered interest rates on deposits higher than those provided by the State Bank of India (SBI). Additionally, the lender refunded share capital to members despite the capital-to-risk assets ratio (CRAR) being below the regulatory minimum of 9% and failed to adhere to share linking norms for jewel loans.

Karnataka-based Kanara District Central Cooperative Bank and Raichur District Central Cooperative Bank have been fined Rs1 lakh and Rs50,000 for violating Section 20 of the Banking Regulation Act (BR Act).

RBI's statutory inspection of Kanara District Central Cooperative Bank found that the lender had sanctioned loans to its directors and to companies or concerns in which the directors had an interest. Similarly, the inspection of Raichur District Central Cooperative Bank revealed that it had also sanctioned loans to its directors.

RBI says its action against these four cooperative banks and the NBFC is based on deficiencies in regulatory compliance and is not intended to pronounce on the validity of any transaction or agreement entered into by the banks with their customers.

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