RBI mulls new penalty framework for banks: Report

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Reserve Bank of India (RBI) is considering a comprehensive review of its penalty system, Business Standard reported citing a senior regulatory source. The potential changes might involve increasing the penalty amounts, this could be in accordance with the size of the regulated entities, their importance to the system, and the number of repeat offences, it added.

Additionally, the review may explore clawback of payouts to CEOs and key management personnel (KMP), it said. This aspect, in particular, could hit state-run banks, whose compensation packages have already been under debate when considered against those offered by private banks.

There is also speculation about the possibility of imposing additional capital charges on regulated entities, as per the report. The initiative comes as the apex bank looks to enhance corporate governance standards within regulated entities and emphasize its importance, it added.

In a meeting with the boards of state-run and private banks in May, RBI Governor Shaktikanta Das discussed governance issues, ethics, the role of boards, and supervisory expectations. This is being viewed as an extension of that focus.

On November 16, the RBI imposed a monetary penalty of ₹90.92 lakh on Axis Bank for non-compliance with certain directions issued by the apex bank on ‘Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016’, ‘Loans and Advances – Statutory and Other Restrictions’, ‘Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks’ and ‘Code of Conduct for Opening and Operating Current Accounts’. The Reserve Bank said after examination of the Risk Assessment Report/Inspection Report pertaining to ISE 2022, Scrutiny Report, and all related