RBI imposes monetary penalty on Ahmedabad-based co-operative Bank

The Reserve Bank of India (RBI) on Monday imposed a monetary penalty of Rs 1 lakh on the Ahmedabad-based Navnirman Co-operative Bank Limited for contravention of the central bank's directions on Loans and advances to directors, relatives and firms/concerns in which they are interested and clarification regarding loans and advances to directors etc- directors as surety/guarantors.  

As per the official RBI release, this penalty has been imposed in exercise of powers vested in the RBI under the provisions of Section 47A (1) (c) with Sections 46 (4) (i) and 56 of the Banking Regulation Act, 1949, factoring in the bank’s failure to follow the directions issued by the RBI.

It added, “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 bank with its customers.”

The RBI pressed these charges on the erring bank on the basis of its statutory inspection w.r.t. the bank’s financial position as of March 31, 2022. The Inspection report and inspection of related correspondence revealed that the bank sanctioned a loan to a relative of one of its directors and had granted loans wherein relatives of its directors stood as surety/guarantor.

This led to contravention of the above mentioned RBI directions. As a result, the RBI issued a show cause notice to the bank and sought explanation on why any penalty should not be imposed. After factoring in the bank’s reply to the notice and submissions during the personal hearing, the central bank concluded that the charges are substantiated and warranted imposition of monetary penalty.