In the case of Syndicate Bank, penalty has been imposed for non-compliance with the RBI’s directions on frauds classification and reporting and innovative housing loan products.

RBI imposes penalty on Syndicate Bank and Lakshmi Vilas Bank
Money Banking Tuesday, October 15, 2019 - 14:35

The Reserve Bank of India has come down strictly on two banks for non-compliance of its directives and imposed monetary penalties on them. The banks are Lakshmi Vilas Bank and Syndicate Bank and the fines imposed on them are Rs 1 crore and Rs 75 lakh respectively.

Explaining why this penalty is being imposed, RBI says Lakshmi Vilas Bank failed to comply with certain provisions of the directions issued by it on ‘Income Recognition and Asset Classification (IRAC) norms. The detection of the violation came about through the inspection of the statutory books maintained by the bank and the violations pertains to the financial year ended March 31, 2017. As per the practice followed in such cases, Lakshmi Vilas Bank was asked to submit its explanation for the non-compliance of the RBI directives and the response received from the bank was not satisfactory. Hence the penalty.

The reason the other entity, Syndicate Bank, received the order from RBI imposing a Rs 75-lakh penalty was its failure in adhering to the RBI regulations in the areas of (i) frauds classification and reporting and (ii) innovative housing loan products – upfront disbursal of housing loans.

Lakshmi Vilas Bank has been under RBI’s radar for a while now. The bank has been suffering negative returns on assets for two years in succession and RBI had placed it under prompt correction action (PCA) framework towards to end of September. The non-performing assets of LVB were disproportionately high. RBI has now stopped LVB from merging with Indiabulls as well.

Syndicate Bank figured in the list of banks chosen for merger as announced by the Finance Minister Nirmala Sitharaman recently. Syndicate Bank has to be merged with Canara Bank. Ahead of that, this penal action by RBI on the bank has been ordered. The major complaint is the bank had failed to comply with the norms for reporting frauds. The other issue was in the disbursal of housing loans.

RBI says the bank was issued a notice and was given the opportunity of a personal hearing to explain the situation and file a written response to the issues raised.

It is only after going through these processes that the regulator came to the conclusion that the charges do stand substantiated and therefore the penalty has to be imposed.

None of these actions by RBI will affect the relationships Syndicate Bank and LVB will have with their respective customers. No reversal of any actions is contemplated. These are issues between RBI and the banks and the penalty is for non-compliance of directives.

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