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A couple of decades back, on my first trip to Singapore, a slogan on t-shirts, coffee mugs and posters in a souvenir shop had us in splits. The line staring at us was ‘Singapore is a fine country – it is a country of fines”. Having been amazed at the cleanliness of the city, the self-deprecatory play on words emphasising the checks and balances that contributed towards keeping it clean was a hilarious eye-opener. Spitting, chewing gum, littering, feeding birds, picking flowers, not flushing etc were but some of the offences that attracted fines.
A cursory perusal of notifications from the Reserve Bank of India reveals that over the past 6 months many of the large banks have been fined. Here are some of the charges which warranted imposition of monetary penalty. The bank opened certain savings deposit accounts in the name of ineligible entities; the bank had allotted multiple customer identification code to certain customers instead of a Unique Customer ldentification Code (UCIC) for each customer; gave gifts (in the form of paying first-year premium for the complimentary life insurance cover) costing more than ₹250 to the depositors at the time of accepting certain deposits; failed to ensure that customers are not contacted after 7 pm and before 7 am; failed to report certain cases of fraud to law enforcement agencies.
From these sprout certain obvious questions
Were the violations committed only in the year in which it was picked up in the RBI audit? If so, what led to a Bank suddenly turning non-compliant? What was the accountability of the Audit Committee of the Board? Banks have senior RBI officers monitoring their activities on a real time basis. They are called Senior Supervisory Managers (SSM). Was accountability fixed on the SSMs? Last but not the least, some of these violations have an impact on customers. For eg. charges debited without adequate notice being given to customers. In such cases does RBI insist that Banks refund the affected customers since time of notification of the circular or is it only for the specific year of audit?
The recent notification by RBI addressed to supervised entities (SE) pertaining to irregular practices observed in grant of loans against pledge of gold ornaments and jewellery is quite damning. Quote “The review, as well as the findings of the onsite examination of select SEs by the Reserve Bank, indicate several irregular practices in this activity. The major deficiencies include (i) shortcomings in use of third parties for sourcing and appraisal of loans; (ii) valuation of gold without the presence of the customer; (iii) inadequate due diligence and lack of end use monitoring of gold loans; (iv) lack of transparency during auction of gold ornaments and jewellery on default by the customer; (v) weaknesses in monitoring of LTV; and (vi) incorrect application of risk-weights, etc.”Unquote
Gold loan is not a new line of business. It is one of the oldest forms of finance and has been granted by Banks and NBFCs for a very long period of time. For the regulator to now realise that there are major deficiencies raises questions about the audit processes- concurrent, statutory and regulatory. Recently, regulatory embargo on gold loan business of a large NBFC was lifted by the regulator. The question is – did that happen when the regulator realised that the issue is systemic and not just prevalent in one entity. One would tend to surmise so, given the lament by NBFCs in private conversations that for the same transgression – the NBFC sees a shut down in business whereas the Bank gets away with a light rap on the knuckles.
That RBI has done a stellar job towards supporting economic growth and stability is a fact echoed globally. Amongst the various functions pertaining to being a monetary authority, manager of foreign exchange, issuer of currency, regulator and supervisor of payments and settlement systems, regulator and supervisor of the financial system and development role – resides the old fashioned, non glamourous role of supervision. Recent instances of penalties and the issues mentioned therein indicate that the regulator is gearing up to set a very “fine” example. Caveat Banker.
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint