The Reserve Bank of India (RBI) has been fervently taking different actions on banks for disregarding the regulatory framework and flouting rules. Recently, the central bank has taken a major action against the country's largest public sector bank, Canara Bank, by imposing a hefty fine amounting to crores. This punitive action, deemed as the RBI Penalty on Bank, entails a penalty of Rs 2.92 crore on the bank, as announced by the Reserve Bank.
According to the central bank's communication, this stringent action has been initiated against Canara Bank for various operational deficiencies, including the bank's propensity to link interest rates to external benchmarks, such as the repo rate, which is not in compliance with the regulatory requirements. Additionally, the bank has been found guilty of opening savings accounts for ineligible entities, thereby contravening the established guidelines.
The Reserve Bank had conducted a statutory inspection on Canara Bank's financial functioning on March 31, 2021. The inspection was carried out in July 2020, following a complaint of fraud received from another bank. Subsequently, the RBI uncovered that the bank had not complied with the regulatory framework concerning linking interest rates on loans provided to retail and MSMEs based on floating rate to an external benchmark. Furthermore, the bank had not linked the interest rate to be charged on the new floating rate based rupee loan with the Marginal Cost of Lending Rate (MCLR) in the financial year 2020-21.
The RBI has highlighted that Canara Bank also opened savings accounts in the name of several ineligible entities and provided fake mobile numbers in many credit card accounts. Moreover, the bank failed to pay interest on the accounts opened under the Daily Deposit Scheme and charged MMS fees on accounts that were not even used. The bank has also failed to issue alerts based on transactions, as per the RBI's directives.
Following these numerous operational discrepancies, the Reserve Bank has issued show cause notices to Canara Bank, requiring the bank to explain why action should not be taken against it. In response, the bank provided oral and written explanations. The RBI subsequently imposed a penalty of Rs 2.92 crore on the bank.
While the RBI's action may have sent shockwaves across the banking industry, it is unlikely to have any bearing on the bank's customers. This action has been taken solely on the grounds of operational inefficiencies on the part of the bank and is not intended to adversely impact its customers in any way.
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