Summary of this article
RBI fines Kotak Mahindra bank for multiple regulatory compliance lapses
Inspection flags BSBD account duplication and BC violations
Inaccurate credit reporting raises borrower protection concerns issues
Kotak Mahindra Bank has been fined Rs 61.95 lakh by the Reserve Bank of India (RBI) for violating banking related regulations. The move follows the regulator's required assessment of the bank's financial situation as of March 31, 2024.
The central bank, in a release issued on December 19, said the inspection, conducted under Statutory Inspection for Supervisory Evaluation for 2024 (ISE 2024), has revealed various compliance gaps. The regulator, after reviewing the responses of the bank and additional submissions, has concluded that the lapses were serious enough to attract a financial penalty.
Multiple Violations Clearly Set Out
The fine has been levied under the Banking Regulation Act, 1949, and Credit Information Companies Regulation Act, 2005. RBI has identified three critical breaches of the code which, in turn, directly affect customers and the financial system.
The findings included opening more than one basic savings bank deposit account for customers who already held the same account with the same bank. According to RBI norms, a customer is allowed to maintain only one such account with a bank. The purpose of these accounts is to promote financial inclusion through basic banking services at low or no cost. Holding multiple accounts by the same customer violates the intent of these rules, and has implications on monitoring and reporting.
Issues Regarding Business Correspondents
The inspection also found that the bank had entered into arrangements with business correspondents for activities that are not permissible under the extant guidelines. Business correspondents are hired by banks to extend the banking services to inaccessible and unbanked areas in the country. The role of business correspondents is limited to a few activities to reduce operational and consumer risks.
With banks allowing business correspondents to operate out of their area of approval, customer protection becomes a concern. It also increases the chances of mis-utilisation or miscommunication at the customer level as per RBI.
Credit Data Reporting Issues
The other major problem identified by the regulator included submission of false information regarding particular borrowers to credit information companies (CICs). Credit data is used extensively by lenders in determining loan eligibility, pricing, and repayment capacity.
Incorrect credit reporting can harm a borrower as it directly relates to their credit score and their future ability to access loans. Even slight errors have the possibility to affect individuals in the long run, particularly first-time borrowers or those having limited credit history.
