RBI Imposes Rs 91 Lakh Penalty on HDFC Bank for Banking Regulation Act Violations and KYC Compliance Issues

The Reserve Bank of India has levied a monetary penalty of Rs 91 lakh on HDFC Bank for various regulatory violations, as announced on Friday. According to the RBI, the bank had implemented multiple benchmarks within identical loan categories.

Mumbai:

HDFC Bank faces a Rs 91 lakh penalty imposed by the Reserve Bank of India due to violations of specific provisions under the Banking Regulation Act and deficiencies in statutory and regulatory compliance, particularly related to Know Your Customer (KYC) norms.

The penalty was imposed on the private lender for contravening certain sections of the Banking Regulation (BR) Act and failing to comply with directives concerning 'Interest Rate on Advances', 'Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks', and KYC requirements.

The RBI stated that a Statutory Inspection for Supervisory Evaluation of the bank was conducted in relation to its financial position as of March 31, 2024.

Following supervisory findings that revealed non-compliance with the BR Act provisions, RBI directions, and related correspondence, the central bank issued a notice to HDFC Bank.

After reviewing the bank's response to the notice along with additional submissions, the RBI determined that the charges against HDFC Bank were substantiated, necessitating the imposition of a monetary penalty.

The RBI highlighted that HDFC Bank had adopted multiple benchmarks within the same loan category and had outsourced the function of determining compliance with KYC norms for certain customers to its outsourcing agents.

Additionally, a wholly-owned subsidiary of the bank was found to be conducting business activities not permissible under Section 6 of the BR Act for banking companies, according to the RBI.

The central bank clarified that the penalty is based solely on deficiencies in statutory and regulatory compliance and does not constitute a judgment on the validity of any transaction or agreement entered into by the bank with its customers.

The RBI further noted that the imposition of this monetary penalty does not preclude any additional actions that might be initiated against the bank in the future.

In a separate statement, the RBI also announced that a penalty of Rs 3.1 lakh has been imposed on Mannakrishna Investments for non-compliance with certain provisions of the 'Master Direction - Reserve Bank of India (Non-Banking Financial Company - Scale Based Regulation) Directions, 2023', specifically related to 'Governance Issues'.