The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹56 lakh on The Nainital Bank Ltd (NBL), Uttarakhand, for non-compliance with its directions relating to divergence in non-performing asset (NPA) accounts as well as asset classification and provisioning, and classification and reporting of frauds.

Bank of Baroda holds 98.57 per cent stake in the nearly century old bank.

“This penalty has been imposed in exercise of powers vested in RBI under the provisions of…the Banking Regulation Act, 1949,” the central bank said in a statement.

Regulatory non-compliance

It emphasised that this action is 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.

RBI had conducted the statutory Inspection for Supervisory Evaluation (ISE) of the bank with reference to its financial position as on March 31, 2019.

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The examination of the risk assessment report, inspection report and all related correspondence pertaining to the inspection, revealed, inter alia, non-compliance with the above-mentioned directions to the extent of (i) divergence between bank’s reported NPAs and NPAs assessed by the inspection on account of failure to classify certain borrower accounts as NPA, and (ii) failure to disclose material divergences relating to asset classification and provisioning identified by RBI, despite exceeding the defined threshold, in the notes to accounts, the central bank said.

Further, the report found failure to report frauds as per RBI directions.

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In furtherance to the same, RBI said a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for non-compliance with its directions, as stated therein.

“After considering the bank’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 non-compliance with the aforesaid RBI directions was substantiated and warranted imposition of monetary penalty on the bank, to the extent of non-compliance with the aforesaid directions,” per the statement.