RBI imposes ₹1.05 cr penalty on Kotak Mahindra Bank

The Reserve bank of India (RBI) on Monday said it has imposed a monetary penalty of ₹1.05 crore on Kotak Mahindra Bank Ltd. for not complying with the central bank's rules.

The banking regulator says the penalty has been imposed for "contravention of the provisions of sub-section (2) of Section 26A of the Banking Regulation Act, 1949 (the Act) read with paragraph 3 of 'The Depositor Education and Awareness Fund Scheme, 2014' and for non-compliance with the directions on 'Customer Protection – Limiting Liability of Customers in Unauthorised Electronic Banking Transactions', and 'Loans and Advances – Statutory and Other Restrictions'."

This penalty has been imposed based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers, the RBI says.

The Statutory Inspection for Supervisory Evaluation (ISE) of the bank was conducted by RBI with reference to its financial positions as on March 31, 2018 and March 31, 2019.

The examination of the risk assessment reports, inspection reports and all related correspondence pertaining to the same revealed contravention of non-compliance with provisions of the Act and the directions issued by RBI, to the extent the bank failed to credit the eligible amount to the Depositor Education and Awareness Fund within the period prescribed.

The lender also failed to credit (shadow reversal) the amount involved in the unauthorised electronic transactions to the customers' account within 10 working days from the date of notification by the customer, in certain cases. The bank also failed to maintain or apply margin on advances to stock brokers.

The Reserve Bank says a notice was issued to Kotak Mahindra Bank advising it to show cause as to why penalty should not be imposed on it for contravention of the provisions of the Act and failure to comply with the directions issued by RBI.

After considering the bank's reply to the notice, oral submissions made in the personal hearing, and examination of additional submissions made by the bank, RBI came to the conclusion that the charges of contravention of non-compliance with the aforesaid provisions of the RBI directions were substantiated and warranted imposition of monetary penalty on the bank, to the extent of contravention of non-compliance with such provisions of the Act.

The central bank has also imposed a penalty of ₹1 crore on another private lender IndusInd Bank for non-compliance with certain directions issued by the Reserve Bank of India on know your customer (KYC) norms.