State Bank of India has been slapped with penalties by the Reserve Bank of India for a variety of violations of its directives. The aggregate fine to be paid by the largest government-owned bank is Rs 7 crore.
RBI has one standard set of rules and processes to be followed by all the public sector banks and then there are periodic notifications issued in order to streamline the functioning of the banks. The regulator then keeps an eye on banks not following these procedures and directives. While minor wrongdoings may be let off with a warning letter, serious breaches are met with fines and penalties.
The present Rs 7-crore fine imposed on State Bank of India is due to a number of areas of wrongdoing. These include non-conformity with asset classification norms, violation of code of conduct for opening and operating current accounts and delay/default in reporting of data on Central Repository of Information on Large Credits. Banks would usually assign compliance officers to take care of most of these cases of reporting back to RBI. Many of these are detected while the RBI audit team visits the banks’ branches periodically. As per the normal audit practice, the branches will be informed of the irregularities detected and some time allotted to rectify the errors. Where such rectification is not feasible for any reason, it will go into the audit report.
Apart from the issues mentioned above, State Bank of India appears to have floundered on fraud risk management and in classification and reporting of frauds as well. The fine covers all these areas.
It needs to be clarified here that while RBI finds faults with the banks and imposes fines etc. at no point will these punishments affect the arrangements that the banks have entered into with their customers. These are merely compliance issues between the banks and their regulator, the RBI.