RBI imposes heavy penalty on RBL Bank Limited for non-compliance with directives

The Reserve Bank of India (RBI) has imposed a monetary penalty of over rupees two crore twenty-seven lakh (Rs 2,27,25,000) on RBL Bank Limited for non-compliance with certain provisions of the directions issued by it.

As per the RBI directive, the rules overlooked by the bank include directives on ‘Internal Ombudsman Scheme, 2018’, ‘Fair Practices Code for Lenders’, ‘Credit Card Operations of Banks’, ‘Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks’ and ‘Recovery Agents engaged by Banks’. 

The central bank further informed that this penalty has been imposed in exercise of powers vested in RBI under the provisions of section 47 A (1) (c) read with sections 46 (4) (i) of the Banking Regulation Act, 1949 (the Act).

"This action is based on the deficiencies in regulatory compliance observed relating to the period FY 2018-19 to FY 2021-22 and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers," it added.

RBI penalises RBL Bank: What are the allegations?

As per the RBI release, an examination of a report based on certain complaints pertaining to the period FY 2020-21 and FY 2021-22, received against the recovery agents engaged by the bank and related correspondences revealed that:

i) the bank failed to communicate the decision of its Internal Ombudsman (IO) properly, in certain cases (FY 2020-21), 
(ii) the bank failed to ensure that the recovery agents engaged by it as a part of its debt collection effort did not resort to intimidation or harassment of any kind (FY 2020-21 and FY 2021-22), 
(iii) the bank failed to ensure that recovery agents engaged by the bank either directly or through recovery agencies had completed training course for Direct Recovery Agents and obtained a certificate from Indian Institute of Banking & Finance (IIBF), before being onboarded (FY 2018-19 to FY 2021-22),
(iv) the bank failed to ensure that pre-employment police verification was carried out for recovery agents engaged by it (FY 2018-19 to FY 2021-22); and,
(v) the bank failed to inform borrowers the details of the recovery agency, at the time of forwarding their cases to the recovery agency (FY 2020-21). 

Furthermore, the central bank informed a notice was served to the bank advising it to show cause as to why penalty should not be imposed on it for failure to comply with the aove mentioned directions issued by it.

RBI informed that the decision to penalise RBL was taken after considering the bank’s reply to the notice, oral submissions made during the personal hearing and additional submissions made by it.