5 Cooperative Banks Face RBI Action for KYC Non-Compliance and Lending Breaches

The Reserve Bank of India (RBI) has imposed monetary penalties totalling ₹4.10 lakh on 5 cooperative banks for non-compliance with regulatory guidelines. The action follows inspections that identified lapses in lending practices, KYC norms, and reporting obligations.

The highest penalty of ₹2.10 lakh was levied on Nasik Road Deolali Vyapari Sahakari Bank Ltd. The regulator clarified that the penalties relate to compliance deficiencies and do not affect customer transactions.

RBI Penalty Details on Cooperative Banks in India

The RBI imposed penalties on 5 cooperative banks across Maharashtra, Karnataka, and Gujarat based on inspection findings. The total penalty amount stands at ₹4.10 lakh, with varying amounts based on the severity of violations.

Nasik Road Deolali Vyapari Sahakari Bank Ltd received the highest penalty of ₹2.10 lakh. Other penalised entities include Wardha District Ashirwad Mahila Nagari Sahakari Bank Maryadit, Navapur Mercantile Cooperative Bank Ltd, Chitradurga District Cooperative Central Bank Ltd, and Sarvodaya Commercial Cooperative Bank Ltd.

Reason For RBI Action On Lending and Director-Linked Loans

The penalty on Nasik Road Deolali Vyapari Sahakari Bank was linked to non-compliance with directions governing loans to directors and related parties. The RBI inspection, based on its financial position as of March 31, 2025, found that the bank had sanctioned loans to relatives of its directors.

Such practices violate regulatory norms designed to ensure fairness and avoid conflicts of interest. These guidelines restrict lending to entities where directors have a direct or indirect interest.

KYC Violations and Banking Regulation Act Breaches

Chitradurga District Cooperative Central Bank Ltd was penalised for violating Section 20 of the Banking Regulation Act, 1949, along with deficiencies in KYC compliance. The inspection conducted by NABARD revealed that the bank sanctioned loans to directors and related entities.

It also failed to upload customer records to the Central KYC Records Registry (CKYCR) within prescribed timelines. These lapses indicate weaknesses in compliance systems and adherence to regulatory reporting standards.

Other Cooperative Banks Penalised by the RBI And Key Issues

Other cooperative banks were penalised for specific regulatory breaches, highlighting varied compliance issues across institutions. Sarvodaya Commercial Cooperative Bank Ltd was fined ₹20,000 for levying penal charges on inactive accounts for non-maintenance of minimum balances.

Wardha District Ashirwad Mahila Nagari Sahakari Bank Maryadit was fined ₹20,000 for breaching exposure norms applicable to urban cooperative banks. Navapur Mercantile Cooperative Bank Ltd received a penalty of ₹10,000 for failing to furnish required information during inspection under Section 35(2) of the Banking Regulation Act.

Read More: RBI Proposes New Deposit Rate Rules to Improve Transparency and Flexibility.

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Conclusion

The RBI’s action highlights continued regulatory oversight of cooperative banks to ensure adherence to compliance standards. The penalties were imposed based on deficiencies identified during statutory inspections and supervisory reviews.

The violations ranged from improper lending practices to KYC non-compliance and reporting lapses. The central bank reiterated that such penalties are intended to address compliance gaps and do not impact the validity of customer transactions.

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