RBI Enforcement and Penalties in FY24

RBI imposed penalties in 281 instances totaling ₹86.1 crore in FY24, up from ₹40.4 crore (211 cases) in FY23.

• State-run and private banks saw increased penal action; foreign banks and small finance banks saw a decline.
• Highest historical penalty: ₹58.9 crore on ICICI Bank (March 2018) for HTM securities violations.

RBI's Scale-Based Enforcement Framework

• A new enforcement strategy aligns penalties with a regulated entity’s (RE’s) size, complexity, and risk.
• This move followed high-level meetings by RBI Governor Shaktikanta Das with public and private bank boards in May 2023.
• Clawback provisions from RBI’s 2019 circular (effective FY20) are being tested but face long litigation timelines (e.g., Yes Bank case).

Legal Framework

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• RBI is empowered under Sections 46 and 47A of the Banking Regulation Act, 1949, but has yet to act against individuals.
• Suggestion: Adopt a UK-style Senior Managers & Certification Regime (SMCR) for personal liability.

Fraud Detection: Lag Still a Major Problem

• FY24 frauds involved ₹21,367 crore in 18,461 cases vs ₹2,623 crore (14,480 cases) in FY23.

Technology Gaps in Fraud Detection

• Most systems detect known fraud patterns, causing delays in identifying new fraud techniques.
• Jaya Vaidhyanathan, CEO, BCT Digital: Calls for real-time surveillance, adaptive AI/ML systems to shift from detection to fraud prevention.

Need for Sector-Wide Governance Reform

• Experts note India’s penalties are modest compared to global regulators.
• RBI’s governance reforms need to expand beyond banks to all regulated entities (REs), including NBFCs, HFCs, CICs, etc.
• Current penalties may be seen as just another operating expense unless backed by stronger governance-linked pay structures and disclosure norms.

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