RBI Penalizes Yes Bank and ICICI Bank for Regulatory Breaches

Recent Developments

The Reserve Bank of India (RBI) recently imposed monetary penalties on Yes Bank and ICICI Bank for non-compliance with various regulatory directives.

Major Highlights

Yes Bank:

Penalties Amount: ?91 lakh

Violations Identified:

• She levied charges on accounts with insufficient or zero balances for non-maintenance of minimum balance.
• She operated internal accounts in the name of customers for unauthorized purposes, such as parking funds and routing customer transactions.

Investigation and Findings:

• The penalties resulted from a comprehensive assessment conducted during the Statutory Inspection for Supervisory Evaluation (ISE 2022).
• The RBI's findings revealed that Yes Bank had charged fees on accounts that did not maintain the required minimum balance despite having insufficient funds. Additionally, the bank was found to have opened and operated certain internal accounts for unauthorized purposes.

Response and Conclusion:

• The RBI issued a show-cause notice to Yes Bank, asking why a penalty should not be imposed for the identified violations.
• After reviewing the bank’s response, oral submissions during a personal hearing, and additional submissions, the RBI concluded that the charges were sustained, justifying the imposition of the penalty.

ICICI Bank:

Penalties: Amount: ?1 crore

Violations Identified:

• Contravened RBI's directions on 'Loans and Advances – Statutory and Other Restrictions.'
• Failed to exercise due diligence in sanctioning term loans to certain entities.

Investigation and Findings:

• The penalty followed an RBI scrutiny which revealed deficiencies in ICICI Bank's loan sanctioning process.
• Specifically, the bank sanctioned term loans to entities without proper due diligence on the viability and bankability of the projects. The loans were intended to substitute budgetary resources for projects without ensuring that revenue streams from these projects were sufficient for debt servicing.

Response and Conclusion:

• Similar to Yes Bank, ICICI Bank received a show-cause notice from the RBI.
• After considering the bank's response, oral submissions during a hearing, and further examinations, the RBI-determined that the violations warranted a monetary penalty.

Conclusion

It was discovered that:

• Yes Bank shares closed at? 04, a slight increase bin 0.010 (0.043%).
• ICICI Bank shares ended at? 1,129.15, a decrease of?10 (0.19%).

The RBI's actions underscore the importance of strict adherence to regulatory guidelines to maintain the integrity of banking operations and customer trust.

The imposition of penalties is part of the RBI's ongoing efforts to ensure banks operate within the prescribed regulatory framework, focusing on due diligence, customer service, and the proper management of internal accounts. The penalties serve as a warning to other financial institutions about the repercussions of non-compliance.

These actions highlight the need for robust internal controls and adherence to regulatory requirements to prevent financial and operational risks. The RBI's findings and subsequent penalties demonstrate its commitment to enforcing regulatory compliance and ensuring the stability and integrity of the banking sector in India.