RBI Imposes Significant Penalties on ICICI Bank and Yes Bank

Market Recap

On Monday, a bearish candlestick pattern formed on the Nifty with shadows on both sides. It registered a high of around 23,111 during afternoon trade. However, last hour’s sell-off took the index below the 23,000 mark to settle at 22,932 (down by 0.11% or 25 points). It is apparent that bulls are facing resistance at higher levels and market participants remain on tender hooks for the general election.

Banking Sector Outperforms

Despite the general market hesitation, the banking sector emerged as the biggest winner with over 0.50% upmove on Monday. In this particular sector, something significant occurred which involved ICICI Bank and Yes Bank the Reserve Bank of India (RBI) imposed monetary fines against both banks.

RBI Penalty on ICICI Bank

The RBI has levied a penalty of Rs 1 crore on ICICI Bank for violation of certain directions pertaining to ‘Loans and Advances – Statutory and Other Restrictions’. This action is initiated under section 47A(1)(c) read with section 46(4)(i) of the Banking Regulation Act, 1949.

Inspection Findings

There were several compliance issues revealed by the RBI’s Statutory Inspection for Supervisory Evaluation (ISE 2022) based upon the bank’s financial position as of March 31, 2022:

• Improper loan sanction: The bank granted loans in order to replace or substitute budgetary resources for particular schemes.
• Lack of due diligence: Approved loans without proper due diligence on the projects’ viability and profitability, failing to ensure that the projects could generate enough revenue to repay the loans.
• Unauthorized loan repayments: Allowed loan repayments to come from budgetary resources rather than projects themselves.
• Absence of oversight: Did not ensure that the loans were for specific, monitorable projects.

All these infractions led to the imposition of fine amounts stated above.

RBI Penalty on Yes Bank

Similarly, the RBI penalized Yes Bank with a sum of Rs 91 lakh for non-compliance. The central bank’s inspection based on financial status as of March 31, 2022, has found the bank guilty of:

Unjustifiable fees: The bank charged fees in some cases when people were unable to maintain the minimum balance in their savings accounts.

Unauthorized account usage: Some internal accounts were opened in customers’ names and operated for unauthorized purposes like parking funds and processing transactions.

What’s Next?

These developments will most likely put ICICI Bank and Yes Bank under scrutiny on Tuesday as traders react to RBI actions. This occurrence is an example that emphasizes the need for compliance and due diligence within banking operations.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.