The Reserve Bank of India (RBI) has, by an order dated October 31, 2023, imposed a monetary penalty of ₹1.00 Crore (Rupees One crore only) on Indian Overseas Bank (the bank) for non-compliance with certain directions issued by RBI on ‘Loans and Advances – Statutory and Other Restrictions’. This penalty has been imposed in exercise of powers vested in RBI conferred under the provisions of Section 47A(1)(c) read with Sections 46(4)(i) and 51(1) of the Banking Regulation Act, 1949.
This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.
The Statutory Inspection for Supervisory Evaluation (ISE 2022) of the bank was conducted by RBI with reference to its financial position as on March 31, 2022. The examination of the Risk Assessment Report/Inspection Report pertaining to ISE 2022, and all related correspondence in that regard, revealed, inter alia, non-compliance with the aforesaid directions by the bank, to the extent it sanctioned (1) term loans to two Corporate entities (i) in lieu of or to substitute budgetary resources envisaged for certain projects; (ii) without undertaking due diligence on the viability and bankability of the projects to ensure that revenue streams from the projects were sufficient to take care of the debt servicing obligations; and (iii) the repayment/servicing of which was made out of budgetary resources, and (2) a term loan to another Corporate entity (i) without undertaking due diligence on the viability and bankability of the projects to ensure that revenue streams from the projects were sufficient to take care of the debt servicing obligations; and (ii) the repayment/servicing of which was made out of budgetary resources. Consequently, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for failure to comply with the directions issued by RBI, as stated therein.
After considering the bank’s reply to the notice and oral submissions made by it during the personal hearing, RBI came to the conclusion that the aforementioned charge of non-compliance was substantiated and warranted imposition of monetary penalty.