Regulatory bite gets sharper for banks and non-banks

K Ram Kumar / Surabhi Mumbai | Updated on August 29, 2021

RBI to no longer confine self to monetary penalties; imposes business restrictions on non-compliant regulated entities

The regulatory bite is getting sharper for regulated entities (REs), including banks and non-banks, with business restrictions being imposed by the Reserve Bank of India (RBI) on those not complying with its regulations, going by its recent actions. Recalcitrant REs will have to banish the thought of getting off lightly by just paying monetary penalties.

Business restriction can prove to be a more potent tool to make a non-compliant RE fall in line with regulations vis-a-vis monetary penalty as it will hurt the RE more.

RBI Governor Shaktikanta Das, in an interaction with BusinessLine, emphasised that supervision of regulated entities has been tightened.

“And for the first time, we are not confining ourselves to monetary penalty (for regulatory violations). We are also imposing business restrictions. Some ₹1 crore monetary penalty here, ₹2 crore there, how does it matter? So, we are entering into business restrictions. We are answerable to the public,” he said.

Also see: Monetary penalty imposed on five payment system operators

Imposition on UCBs

Das likened the business restrictions on banks and non-banks to All Inclusive Directions (AID) imposed by the RBI on some of the urban co-operative banks (UCBs). AID is imposed on UCBs to arrest further deterioration in their financial health and protect depositors’ interest.

“In the case of co-operative banks, once we impose AID, business restrictions are put – they will not accept fresh deposits and cannot grant or renew any loans and advances.

“All those business restrictions, which were earlier confined only to co-operative banks, we are now using it for other entities also. So, this really helps in the enforcement action,” explained Das.

Business restrictions

Last December, RBI directed HDFC Bank to temporarily halt sourcing of new credit card customers as well as launches of digital business generating activities planned under its proposed programme Digital 2.0. However, in a major relief for the private sector bank, the central bank partially lifted the ban, allowing it to issue new credit cards.

RBI barred Mastercard from acquiring new customers (debit, credit or prepaid) from July 22 for not complying with data localisation requirements.

According to RBI’s latest annual report, during the July 2020-March 2021 period, it took enforcement action against 54 REs and imposed an aggregate penalty of ₹19.41 crore for non-compliance with provisions/contravention of certain directions issued by it from time to time through various circulars.

Since April 1, 2015, 52 UCBs (up to December 11, 2020) have been placed under AID by RBI, per the Report on Trend and Progress of Banking in India 2019-20.

Published on August 29, 2021

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