RBI penalises three Gujarat-based cooperative banks for rule violations

The Reserve Bank of India (RBI) on October 17 imposed a monetary penalty on Gujarat based-Meghraj Nagarik Sahakari Bank, Gandhidham Mercantile Co-operative Bank and Co-operative Bank of Rajkot for violating regulatory norms.

The regulator has imposed a penalty of Rs 25,000 on Meghraj Nagarik Sahakari Bank and Rs 50,000 on Gandhidham Mercantile Co-operative Bank for non-compliance with directions pertaining to loans and advances given to directors, according to two separate releases on the central bank’s website.

The RBI’s inspection found that banks had individually sanctioned loans, wherein directors’ relatives stood as surety or guarantors, resulting in contravention of the aforesaid direction issued by RBI.

Additionally, the RBI has also penalised Co-operative Bank of Rajkot with a fine of Rs 2 lakh as the lender had not transferred balances lying in certain accounts remaining unclaimed for more than ten years to the Depositor Education and Awareness Fund, said the central bank.

Based on the above violations, a notice was issued to each bank advising them to individually show cause as to why a penalty should not be imposed for non-compliance with the directions issued by the RBI.

After considering the banks’ reply to the notice and oral submissions made during the personal hearing, the RBI came to the conclusion that the aforesaid charge was substantiated and warranted the imposition of monetary penalty, the release showed.

The RBI’s actions are based on deficiencies in regulatory compliance and not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers, the central bank said.

Also read: RBI penalises three co-operative banks for rule violations

The RBI has been tightening its grip on regulated entities, specifically cooperative banks, to ensure that appropriate corporate governance practices and regulations are followed.

On July 20, an RBI committee had recommended a four-tier regulatory framework for urban cooperative banks (UCBs) based on the size of deposits and their area of operations.

The bankruptcy of the erstwhile Punjab & Maharashtra Cooperative Bank (PMC) had prompted the regulator to announce tighter regulations for these lenders.