Context:
The Reserve Bank of India (RBI), through an order dated 20 May 2026 (communicated on 22 May 2026), has imposed a monetary penalty of ₹10.10 lakh on City Union Bank Limited for non-compliance with directions on Priority Sector Loan accounts and reporting of Self-Help Group (SHG) member-level data to Credit Information Companies (CICs). The penalty, which is split as ₹10 lakh for priority-sector-lending lapses and ₹10,000 for SHG data-reporting failure, has been imposed under Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949 and Section 25(1)(iii) read with Section 23(4) of the Credit Information Companies (Regulation) Act, 2005.
Key Highlights
- Regulator: Reserve Bank of India (RBI).
- Order date: 20 May 2026.
- Action source: Statutory Inspection for Supervisory Evaluation (ISE 2025) based on financial position as on 31 March 2025.
Entities and penalties:
| Entity | Penalty | Nature of Lapse |
|---|---|---|
| City Union Bank Limited | ₹10.10 lakh | Priority Sector Loan charges + SHG data reporting failure |
| Newa Investments Private Limited | ₹2.70 lakh | Governance: appointing directors without prior RBI written permission |
| Mintifi Finserve Private Limited (NBFC) | ₹3.10 lakh | KYC: failure to upload customer KYC to Central KYC Records Registry on time |
City Union Bank, split of penalty:
| Component | Amount | Violation |
|---|---|---|
| Priority Sector Loan charges | ₹10,00,000 | Levied loan-related charges on certain agriculture priority sector loans up to ₹25,000, prohibited by RBI directions |
| SHG data reporting | ₹10,000 | Did not report SHG member-level data to Credit Information Companies |
Statutory basis for the action:
- Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949.
- Section 25(1)(iii) read with Section 23(4) of the Credit Information Companies (Regulation) Act, 2005.
About the News
What action has the RBI taken against City Union Bank?
Imposed a monetary penalty of ₹10.10 lakh, split into ₹10 lakh for priority-sector-lending lapses (levying loan-related charges on certain agriculture priority sector loans up to ₹25,000) and ₹10,000 for SHG data-reporting failure (not reporting Self-Help Group member-level data to Credit Information Companies).
What about the two NBFCs?
(a) Newa Investments Private Limited: ₹2.70 lakh penalty for appointing directors without prior written RBI permission, in breach of governance directions. (b) Mintifi Finserve Private Limited: ₹3.10 lakh penalty for failure to upload customer KYC records to the Central KYC Records Registry within the prescribed timeline, in breach of KYC directions.
What is the legal basis of the penalties?
The Banking Regulation Act, 1949 (Section 47A(1)(c) read with Section 46(4)(i)) and the Credit Information Companies (Regulation) Act, 2005 (Section 25(1)(iii) read with Section 23(4)). The RBI relied on Statutory Inspection for Supervisory Evaluation (ISE 2025) findings based on the position as on 31 March 2025.
Why did the RBI act on priority-sector-related lapses?
Because under RBI’s Priority Sector Lending (PSL) directions, banks are prohibited from levying processing or service charges on small agricultural loans up to ₹25,000. The intent is to keep small-farmer credit affordable, which is undermined when banks charge fees on these advances.
Background Concepts
What is the Statutory Inspection for Supervisory Evaluation (ISE)?
The RBI’s annual on-site supervisory inspection of banks, NBFCs, and other regulated entities, conducted under the Banking Regulation Act, 1949 and the RBI Act, 1934. Built around a risk-based supervisory framework, ISE assesses financial soundness (capital, asset quality, liquidity), management and governance, regulatory compliance, internal controls, technology risk, and customer-protection practices as on a specific cut-off date (typically 31 March of the relevant financial year). Findings of non-compliance are followed by show-cause notices, personal hearings, and speaking orders, which can lead to monetary penalties, restrictions, or other supervisory actions.
What is Priority Sector Lending (PSL)?
A regulatory framework requiring commercial banks to allocate a specified percentage of their Adjusted Net Bank Credit (ANBC) to priority sectors, including agriculture, MSMEs, education, housing, renewable energy, social infrastructure, weaker sections, and export credit.
What are Credit Information Companies (CICs)?
Regulated entities authorised under the Credit Information Companies (Regulation) Act, 2005 to collect, maintain, and share credit information about borrowers in India. Four CICs operate currently: CIBIL (TransUnion CIBIL), Experian Credit Information Company of India, Equifax Credit Information Services, and CRIF High Mark. Banks, NBFCs, and other regulated lenders are required to report borrower-level credit data (including SHG member-level data, for SHG loans) on a regular basis, enabling credit scoring, underwriting decisions, and a market-wide credit-history infrastructure. Failure to report attracts monetary penalties under the Act, as in the City Union Bank case.
Practice MCQs
Q1. With reference to the RBI’s recent enforcement action on City Union Bank, consider the following statements:
- The RBI has imposed a monetary penalty of ₹10.10 lakh on City Union Bank.
- The penalty includes ₹10 lakh for priority-sector-lending lapses and ₹10,000 for SHG data-reporting failure.
- The action was based on the Statutory Inspection for Supervisory Evaluation (ISE 2025) with reference to the bank’s position as on 31 March 2025.
- The RBI has clarified that the penalty does not affect the validity of any customer transaction or agreement.
How many of the above statements are correct? (a) Only one (b) Only two (c) Only three (d) All four (e) None
Q2. Consider the following statements about the related RBI penalties on NBFCs and other entities:
- Newa Investments Private Limited was penalised for appointing directors without prior written permission of the RBI.
- Mintifi Finserve Private Limited was penalised for failing to upload customer KYC records to the Central KYC Records Registry within the prescribed timeline.
- The penalty on Mintifi Finserve was ₹3.10 lakh.
- The penalties were imposed in exercise of powers under the Banking Regulation Act, 1949 and the Credit Information Companies (Regulation) Act, 2005.
Which of the above are correct? (a) 1, 2 and 3 only (b) 1, 3 and 4 only (c) 2 and 4 only (d) 1 and 4 only (e) All four
Q3. With reference to Priority Sector Lending (PSL) in India, consider the following statements:
- Domestic Commercial Banks must allocate 40 per cent of their Adjusted Net Bank Credit (ANBC) to priority sectors.
- Small Finance Banks have a PSL target of 60 per cent of ANBC.
- Regional Rural Banks have a PSL target of 75 per cent of ANBC.
- RBI directions prohibit banks from levying loan-related charges on small agriculture priority sector loans up to ₹25,000.
Which of the above are correct? (a) 1, 2 and 3 only (b) 1, 3 and 4 only (c) 2 and 4 only (d) 1 and 4 only (e) All four
Q4. Consider the following statements about Credit Information Companies (CICs) in India:
- They are regulated under the Credit Information Companies (Regulation) Act, 2005.
- CIBIL, Experian, Equifax, and CRIF High Mark are the four CICs operating in India.
- Banks and NBFCs are required to report borrower-level credit data, including SHG member-level data for SHG loans.
- Failure to comply with CIC reporting obligations can attract monetary penalties under the Act.
Which of the above are correct? (a) 1, 2 and 3 only (b) 1, 3 and 4 only (c) 2 and 4 only (d) 1 and 4 only (e) All four
Answer Key
- (d), All four statements are correct.
- (e), All four statements are correct.
- (e), All four statements are correct.
- (e), All four statements are correct.
Exam Relevance
| Exam | Relevance |
|---|---|
| UPSC Prelims | GS Paper III on Indian Economy (RBI, Banking, Priority Sector Lending, CICs) |
| UPSC Mains | GS Paper III on Indian Economy, Financial regulation, Consumer protection, Financial inclusion |
| Banking (RBI Gr B, SBI PO, IBPS, NABARD) | Banking, PSL, CICs, KYC, very high importance |
| NABARD Grade A | Core area on PSL, agricultural credit, SHGs, financial inclusion |
