RBI imposed a fine of Rs 1 lakh on the Chikmagalur District Co-operative Central Bank in Karnataka for regulatory violations

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RBI imposed a penalty on Chikmagalur bank

Highlights

RBI has imposed a monetary penalty of Rs 1 lakh on the Chikmagalur District Co-operative Central Bank in Karnataka for regulatory violations.
The penalty was imposed after NABARD inspection and supervisory findings regarding the violation of loan sanctioning linked to the bank's director.
RBI clarified that the penalty is limited to statutory compliance and further regulatory action may be possible in the future.

This article was translated from the original. Read the original version by our correspondent here.

Inspection, Notice, and Basis of Penalty

According to the RBI press release, this monetary penalty was imposed for violation of the provisions of Section 20 read with Section 56 of the Banking Regulation Act, 1949. The central bank stated that it took this action by exercising powers under Section 47A(1)(c), Section 46(4)(i), and Section 56.

The statutory inspection of the bank was conducted by the National Bank for Agriculture and Rural Development (NABARD) with reference to its financial position as of March 31, 2025. Based on supervisory findings and related correspondence, a show cause notice was issued to the bank, asking why penalty should not be imposed for non-compliance with the relevant provisions.

After considering the bank's written reply and oral submissions made during the personal hearing, the RBI found that the allegation of sanctioning loans linked to a director was established. On this basis, the monetary penalty was imposed.

Regulatory Impact and Future Position

The central bank clarified that this action is based on deficiencies in statutory compliance and is not intended to comment on the validity of any transaction or agreement between the bank and its customers. This means the scope of the penalty is limited to regulatory compliance, not a broader reassessment of customer contracts.

The RBI also stated that this monetary penalty is imposed without prejudice to any other action that may be initiated by it in the future. This indicates that if further issues emerge during regulatory review, additional steps may be taken against the bank.

In our previous report, we discussed the changes in RBI's foreign exchange risk regulations and their potential impact on the EUR/INR pair. That article explained how the relaxation in merging onshore-offshore positions and net open position calculation could affect market liquidity and banks' risk strategies, and also suggested, based on technical indicators, that EUR/INR may remain in a limited range.

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