26-Sep-2023
2 mins read
The Reserve Bank of India (RBI), in a recent move, has levied penalties on three state-owned banks, notably the State Bank of India (SBI), Indian Bank, and Punjab & Sind Bank. This decision stems from multiple regulatory norm violations by these institutions.
SBI Faces the Heat
State Bank of India (SBI) finds itself at the forefront, facing a significant penalty of ₹1.30 Crore. The bank breached the RBI guidelines in two main areas: ‘Loans and Advances – Statutory and Other Restrictions’ and ‘Guidelines on Management of Intra-Group Transactions and Exposures’. The legal grounds for this penalty lie within the provisions of Section 47A(1)(c) combined with Sections 46(4)(i) and 51(1) of the Banking Regulation Act 1949.
Root Causes of the Penalty
Digging deeper into the reasons behind this hefty penalty, an examination of the Risk Assessment Report for ISE 2021 revealed concerning practices at SBI. The bank had sanctioned a term loan to a Corporation while sidestepping the planned budgetary resources for certain projects. There was a glaring omission in conducting due diligence on the viability of these projects, which raised doubts about the sufficiency of revenue streams to manage debt obligations. Moreover, the bank permitted loan repayments through budgetary resources. Another significant lapse was in its intra-group transactions, where SBI did not adhere to the prescribed exposure limit, neglecting the intra-day limit granted to its group entity.
SBI’s Defense and RBI’s Conclusion
The RBI did not immediately jump to conclusions. After these initial findings, the bank received a notice asking them to present reasons against the proposed penalty. In response, SBI undertook a comprehensive approach, providing written explanations, making oral submissions during the hearing, and even supplying additional documents to support their stance. However, post-evaluation, the RBI stood firm in its decision, ruling that the non-compliance on SBI’s part was undeniable.
Concluding, this action by the RBI against such major players in the Indian banking sector underlines the regulator’s commitment to upholding the sanctity of its guidelines. It sends a clear message that deviations will not be taken lightly, irrespective of the stature of the institution involved.