The Reserve Bank of India (RBI) imposes heavy penalties on Canara Bank due to the following key reasons:
- Non-Compliance with Regulatory Requirements Triggers RBI Action
The Reserve Bank of India (RBI) has underscored its commitment to maintaining strict regulatory control in the banking sector by imposing a hefty penalty on Canara Bank. This substantial punitive measure, amounting to Rs 2.92 crore, serves as a response to the bank’s disregard for the established regulatory framework and persistent rule violations. Among the key operational deficiencies cited by the RBI is Canara Bank practice of linking interest rates to external benchmarks, such as the repo rate – a clear violation of regulatory requirements. Additionally, the bank has been found to have been opening savings accounts for ineligible entities, further contravening regulatory guidelines.
- Inspection Exposes Regulatory Violations and Fraudulent Practices
Triggered by a fraud complaint received from another bank, the RBI initiated a statutory inspection of Canara Bank’s financial operations in July 2020, based on the financial status as of March 31, 2021. The inspection revealed multiple instances of non-compliance, including the failure to link interest rates on loans provided to retail and MSMEs to an external benchmark, and the absence of linking the interest rate on the new floating rate-based rupee loan with the Marginal Cost of Lending Rate (MCLR) in the 2020-21 fiscal year.
- Irregularities in Savings Accounts and Alert Systems Lead to Severe Consequences
Adding to the list of violations, the RBI inspection discovered that Canara Bank had opened savings accounts for several ineligible entities and provided false mobile numbers for many credit card accounts. Further discrepancies included the bank’s failure to pay interest on accounts opened under the Daily Deposit Scheme, charging MMS fees on unused accounts, and neglecting to issue transaction-based alerts as mandated by the RBI. These findings resulted in the issuance of show cause notices to Canara Bank by the RBI, demanding justifications for the bank’s actions.
In response to these notices, Canara Bank provided both oral and written explanations. However, the RBI found these explanations insufficient and subsequently levied a penalty of Rs 2.92 crore on the bank. It is important to note that these measures are intended to address operational deficiencies within the bank and are not expected to adversely impact Canara Bank’s customers.
