23-06-2023 : The Reserve Bank of India (RBI) has penalised a number of lenders from the public and private sectors with money fines. Jammu & Kashmir Bank and Bank of Maharashtra are two of the banks that have been fined, and Jammu & Kashmir Bank has been assessed a large penalty of Rs. 2.5 crore. On the other side, Axis Bank was hit with a comparatively small penalty of Rs 30 lakh.
RBI’s decision to impose a penalty of Rs 2.5 crore on J&K Bank stems from the bank’s non-compliance with certain directions issued by the central bank. These directions include guidelines on the ‘Creation of a Central Repository of Large Common Exposures-Across Banks,’ as well as the ‘Central Repository of Information on Large Credits (CRILC) – Revision in Reporting,’ ‘Loans and Advances – Statutory and other Restrictions,’ and ‘Time-bound implementation and strengthening of SWIFT-related operational controls.’
Based on RBI’s inspection, it was found that J&K Bank had failed to ensure the integrity and quality of data submitted to CRILC. Additionally, the bank extended term loans to a Corporation without conducting the necessary due diligence to assess the viability and bankability of the projects. This failure to assess the revenue streams from these projects adequately impacted the bank’s ability to meet its debt servicing obligations. Furthermore, J&K Bank neglected to ensure that the repayment or servicing of these term loans did not rely on budgetary resources. Additionally, the bank created financial and non-financial messages in SWIFT without confirming that the underlying transactions were accurately reflected in the CBS (Core Banking System).
Following this development, J&K Bank’s share price closed at Rs 56.50 apiece on Friday, experiencing a decline of 2.99% on the Bombay Stock Exchange (BSE). The penalty imposed by RBI underscores the need for banks to adhere to regulatory guidelines and maintain robust operational controls to ensure the integrity and stability of the banking system.