The Reserve Bank of India (RBI) has imposed a Rs 2.91 crore penalty on Axis Bank and HDFC Bank for failing to comply with regulatory standards.
In a statement, the Reserve Bank of India (RBI) disclosed that Axis Bank has been fined Rs 1.91 crore for violations of the Banking Regulation Act. The infractions include failures related to 'Interest Rate on Deposits,' 'Know Your Customer (KYC),' and 'Credit Flow to Agriculture—Collateral-Free Agricultural Loans.' Meanwhile, HDFC Bank has been fined Rs 1 crore for non-compliance with directions related to interest rates, customer service practices, and the use of recovery agents.
The RBI’s supervisory evaluation of Axis Bank, assessing its financial position as of March 31, 2023, uncovered multiple compliance issues. These included the opening of savings accounts for ineligible entities, a direct violation of regulatory norms. the issuance of multiple customer identification codes instead of a Unique Customer Identification Code (UCIC), and the acceptance of collateral for agricultural loans in amounts up to Rs 1.60 lakh in certain cases.
Further, a subsidiary of Axis Bank was found to be engaged in technology services, a business not permitted for banking companies.
In the statement RBI said, “The action is based on deficiencies in statutory and regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers. Further, imposition of monetary penalty is without prejudice to any other action that may be initiated by RBI against the bank."
In the case of HDFC Bank, the RBI’s investigation was based on its financial position as of March 31, 2022. The central bank uncovered several violations, including the offering of gifts, specifically covering the first-year premium for complimentary life insurance, which exceeded the permissible limit of Rs 250.
HDFC Bank was found to have opened savings accounts for ineligible entities, mirroring a violation identified in Axis Bank. HDFC Bank also “failed to ensure that customers are not contacted after 7 pm and before 7 am”.
“Based on supervisory findings of non-compliance with RBI directions and related correspondence in that regard, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for its failure to comply with the said directions. After considering the bank’s reply to the notice, additional submissions made by it and oral submissions made during the personal hearing, RBI found, inter alia, that the following charges against the bank were sustained, warranting imposition of monetary penalty,” RBI said.
While the RBI has imposed penalties on both banks, it has clarified that these fines are solely due to lapses in regulatory compliance and do not reflect the validity of any transactions or agreements between the banks and their customers. The central bank’s message is unequivocal: financial institutions must rigorously follow guidelines to ensure transparency, protect customers, and uphold the integrity of the banking system.
The penalties serve as a warning to all banks to remain vigilant and uphold high standards of compliance to prevent financial and reputational damage.