RBI Slaps Rs1.99 Crore Penalty on 4, Including CSB Bank, Muthoot Housing Finance
Moneylife Digital Team 13 August 2024
Reserve Bank of India (RBI) has imposed penalties of Rs1.99 crore on two non-banking financial companies (NBFC), one cooperative Bank and a housing finance company (HFC) for non-compliance with the directions issued by the banking regulator. The highest penalty of Rs1.86 crore has been imposed on CSB Bank Ltd.
 
The other entities penalised by RBI are: Muthoot Housing Finance Company Ltd, Nido Home Finance Ltd and Ashoka Viniyoga Ltd from New Delhi.
 
CSB Bank has been penalised for contravention of section 10(1)(b)(ii) of the Banking Regulation Act (BR Act) and non-compliance with directions on guidelines on managing risks and code of conduct in outsourcing of financial services by banks and master circular on branch authorisation.
 
RBI's statutory inspection found that CSB Bank paid commissions to certain employees under a scheme to incentivise the recovery of non-performing assets. The Bank also failed to inform the Indian Banks' Association (IBA) about the termination of service providers and paid commissions or fees to some business correspondents, even though these payments did not include a variable component, RBI says.
 
Muthoot Housing Finance and Ashoka Viniyoga, both NBFCs, were fined Rs5 lakh and Rs3.10 lakh, respectively, for failing to comply with the RBI directions on governance. RBI found that neither NBFC had taken prior written permission for management changes which resulted in a change of more than 30% of their directors, excluding independent directors.
 
Nido Home Finance, a HFC was fined Rs5 lakh for not following RBI guidelines on co-lending by banks and NBFCs to priority sectors. The statutory inspection showed that Nido Home Finance did not include the co-lending arrangement details in their loan agreements, nor did they clearly outline the company's and co-lending bank's roles and responsibilities. Additionally, it failed to disclose all relevant details of the arrangement to customers upfront and did not obtain their explicit consent, RBI says.
 
In all four cases, RBI said penalties are based on deficiencies in regulatory compliance and are not intended to pronounce on the validity of any transaction or agreement they entered into with their customers.
 
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