Indian Overseas Bank Fined Rs 2.20 Crore by RBI for Violating Banking Regulations

Mumbai, 2nd June 2023: The Reserve Bank of India (RBI) has taken action against Indian Overseas Bank, imposing a monetary penalty of ₹2.20 Crore (Rupees Two Crore and twenty Lakh only). The penalty was imposed for the bank’s failure to comply with certain provisions of the Banking Regulation Act, 1949, as well as non-compliance with RBI’s directions on various aspects, including income recognition, asset classification, provisioning norms, interest rates on deposits, and ATM security.

The penalty was imposed under the authority granted to RBI by the provisions of the Banking Regulation Act. The action is based on the findings of a statutory inspection conducted by RBI, known as ISE 2021, which evaluated the bank’s financial position as of March 31, 2021.

During the inspection, it was revealed that Indian Overseas Bank had contravened the provisions of the Act by failing to transfer a mandatory sum equivalent to 25% of its disclosed profit for the fiscal year 2020-21 to its reserve fund. Furthermore, there was a significant discrepancy between the non-performing assets (NPAs) reported by the bank and those assessed during the inspection. The bank also offered interest rates on deposits of non-individual customers that were applicable to senior/super senior citizens in certain instances. Additionally, the bank failed to implement necessary security measures for ATMs, specifically regarding the end-to-end encryption of communication between the ATM terminal/PC and the ATM switch, within the specified timelines.

The bank was issued two notices, prompting it to explain why a penalty should not be imposed for its failure to comply with the Act and RBI’s directions. After considering the bank’s responses, oral submissions, and additional documents submitted during the personal hearing, RBI concluded that the charges of contravention and non-compliance were substantiated, justifying the imposition of the monetary penalty.

It is important to note that this penalty is not intended to challenge the validity of any transactions or agreements between the bank and its customers. The RBI’s action is primarily aimed at addressing the deficiencies in regulatory compliance by the Indian Overseas Bank.