RBI Takes Decisive Action Targets Board Dominance


September 26, 2020

New Delhi, India

Excessive Dominance Concerns Addressed

Reserve Bank of India (RBI) Governor Shaktikanta Das, in a recent address, raised significant concerns about the “excessive dominance” of a select few board members within major commercial banks. These remarks came as part of RBI’s commitment to maintaining transparency and accountability in the banking sector.

In his address, Governor Das emphasized the importance of promoting fair and democratic board discussions. He stressed that all directors, regardless of their positions, must have an equal opportunity to voice their opinions and contribute to crucial decision-making processes. Governor Das cited instances of imbalanced influence by certain directors and noted that such practices could undermine the integrity of banking institutions. By advocating for a more inclusive approach to governance, RBI aims to strengthen the overall resilience and governance standards of the banking industry.

Penalties on Major Banks

In a bold move aimed at upholding regulatory compliance, the RBI imposed monetary penalties on some of India’s leading banks. State Bank of India (SBI), one of the country’s largest lenders, incurred a penalty of ₹1.3 crore for non-compliance with specific RBI directives related to loans and advances. Similarly, Indian Bank faced a penalty of ₹1.62 crore for contravening directives pertaining to loans and advances, KYC (Know Your Customer) norms, and interest rates on deposits. Additionally, Punjab & Sind Bank was penalized ₹1 crore for failing to adhere to the provisions of the Depositor Education and Awareness Fund Scheme. These actions by RBI underscore the critical importance of adhering to banking regulations and maintaining the highest standards of governance and compliance.

Kapol Co-Operative Bank License Cancellation

In a separate development, the RBI made the decision to cancel the license of The Kapol Co-operative Bank Limited, a prominent bank based in Mumbai. This move came in response to the bank’s precarious financial position, which rendered it unable to fulfill its obligations to depositors fully. Consequently, the cooperative bank has been prohibited from conducting banking operations, including accepting and repaying deposits, effective immediately.

Furthermore, the RBI has requested the Additional Secretary & Central Registrar of Cooperative Societies, Ministry of Cooperation, to issue an order for the bank’s winding-up and appoint a liquidator. Upon liquidation, every depositor will be entitled to receive a deposit insurance claim amount of up to ₹5 lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC). Notably, approximately 96.09% of the depositors are set to receive the full amount of their deposits from DICGC.

As of July 24, 2023, DICGC has already disbursed ₹230.16 crore in insured deposits based on claims received from concerned depositors of the bank. This decision reflects the RBI’s commitment to safeguarding the interests of depositors and maintaining the stability of the financial sector.