The Reserve Bank of India has imposed a monetary penalty of ₹1 crore on the State Bank of India (SBI) for contravention of a provision in the Banking Regulation (BR) Act, 1949, relating to the extent of shares a Bank can hold in borrower companies.

The central bank said this action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the State Bank of India with its customers.

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RBI said its statutory inspections for supervisory evaluation (ISE) of SBI with reference to its financial positions as on March 31, 2018, and March 31, 2019, and the examination of the risk assessment reports, inspection report and all related correspondence pertaining to the same, revealed contravention of sub-section (2) of section 19 of the BR Act. The contravention is to the extent that the State Bank of India held shares in borrower companies, as pledgee, of an amount exceeding 30 per cent of paid-up share capital of those companies, the central bank said in a statement.

In furtherance to this, a notice was issued to the bank advising the State Bank of India to show cause as to why penalty should not be imposed on it for contravention of the aforesaid provisions of the Act, as stated therein, RBI added.

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After considering the State Bank of India’s reply to the notice, oral submissions made during the personal hearing, and additional submissions made by the bank, RBI came to the conclusion that the charge of contravention of the aforesaid provisions of the Act was substantiated and warranted imposition of monetary penalty on the bank to the extent of contravention of the aforesaid provisions of the Act.