The Reserve Bank of India has imposed a penalty of Rs 91 lakh on HDFC Bank for violating certain provisions of the Banking Regulation Act. The central bank stated that the penalty is imposed on private sector lenders for deficiencies in statutory and regulatory compliance, including those related to Know Your Customer (KYC) requirements.
The issue pertains to contravention of certain provisions of the Banking Regulation (BR) Act and non-compliance with certain directions on ‘Interest Rate on Advances’, ‘Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks’ and KYC.
The statutory inspection
RBI said a Statutory Inspection for Supervisory Evaluation of the bank was conducted with reference to its financial position as on March 31, 2024.
Based on supervisory findings of non-compliance with the provisions of the BR Act, RBI directions and related correspondence in that regard, RBI issued a notice to the bank.
Discrepancies in loan categorisation
After considering the bank’s reply to the notice and additional submissions made by it, RBI said the charges against the bank were sustained, warranting the imposition of a monetary penalty.
RBI said HDFC Bank had adopted multiple benchmarks within the same loan category, and it had outsourced the function of determining compliance with KYC norms of certain customers to its outsourcing agents.
Also, a wholly-owned subsidiary of the bank undertook business which is not a permissible business that can be undertaken by a banking company under Section 6 of the BR Act, the RBI said.
The central bank, however, said the penalty is based on deficiencies in statutory and regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.