The government is set to tweak provisions of five laws related to banking and insurance to raise penalties for select offences steeply. Non-disclosure of information to the agencies concerned by banks, borrowers and other entities in the financial sector will come under stiffer penalties, according to official sources.
For instance, under Section 47 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961, the penalty for failure by an entity to produce details of any book, account or other relevant documents will be raised to Rs 1.5 lakh for each of the offences from just Rs 2,000 now. If the non-compliance persists, an additional fine of Rs 7,500 will be slapped per day, compared with a paltry Rs 100 now.
In the Factoring Regulation Act, 2011, if particulars of any transaction are not filed by a factor (often a bank or non-banking financial company) with the central registry as stipulated under Section 19, the factor and its officers concerned will be liable to a fine up to Rs 5 lakh. If the non-compliance continues, the fine will be to the tune of Rs 10,000 per day.
Currently, failure to comply attracts fine of only Rs 5,000 per day. Factoring is essentially a transaction where an entity (like MSME) sells its receivables (dues from a customer) to a third party (a ‘factor’ like a bank or NBFC) for immediate funds. It often helps a firm satiate its immediate working capital requirement.
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The laws that will be amended cover areas such as deposit insurance and credit guarantee, factoring and payment and settlement. These are in addition to two legislations that govern Nabard and the National Housing Bank (NHB).
The amendments are part of the government’s broader drive to decriminalise economic offences and simplify procedures to ease compliance burden of firms, and, at times, raise the penalties to discourage non-compliance of rules. The government will introduce an umbrella Bill in the upcoming winter session of Parliament to amend about 110 provisions of 35 laws relating to 16 departments.
In the case of the Payment and Settlement Systems Act, 2007, the amendment to the section 30 (I) will allow the Reserve Bank of India to double the penalty for contravention of certain provisions, including deliberate withholding of information or offering of false statements, to Rs 10 lakh or twice the amount involved in such a default, whichever is higher.
“The low penalties are being raised in select cases, as they were set at a different time when they looked too high. Moreover, even in certain non-so-old laws, the penalties are being raised, especially for withholding critical information. This is because often such actions, when they are left unchecked at the early stage, lead to greater problems later,” one of the sources explained.
Similarly, penalties for certain offences under the NHB Act, mostly relating to select aspects of filing of balance sheets, will be raised by five times to Rs 25,000.
Section 56 of the National Bank for Agriculture and Rural Development Act, 1981, will also be tweaked to provide for a fine of Rs 1.5 lakh from just Rs 2,000 now for failure to furnish relevant details or statements. If the non-compliance continues, an additional fine of Rs 7,500 per day will be imposed, against just Rs 100 now.