Explained: Why did RBI impose penalty on ICICI Bank and YES Bank

RBI says supervisory inspection found violations by both banks about their financial position

The Reserve Bank of India (RBI) on monday penalised ICICI Bank and YES Bank for violating various regulatory norms. ICICI Bank was fined Rs 1 crore, while YES Bank was penalised Rs 91 lakh.

 

RBI’s supervisory inspection found violations by both banks relating to their financial position as on March 31, 2022. The RBI issued notices to both banks, requesting explanation as to why penalties should not be imposed. After reviewing their responses, the RBI concluded that the banks' lapses warranted the penalties.

 

ICICI Bank penalised for improper loan practices

 

ICICI Bank was penalised for sanctioning term loans to certain entities as substitutes for budgetary resources for specific projects, without conducting proper due diligence to verify the viability and revenue streams of these projects. RBI inspections found that the loans were serviced using budgetary resources instead of project revenues. ICICI Bank did not ensure that the loans were for specific, monitorable projects.

 

"The bank had sanctioned term loans to certain entities in lieu of or to substitute budgetary resources envisaged for certain projects, 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," the RBI said.

 

YES Bank penalised for charging customers for insufficient balances

 

YES Bank was penalised for charging customers for not maintaining minimum balances in certain savings accounts that had insufficient or zero balances -- a contravention of RBI guidelines. Additionally, the bank operated internal accounts under customers' names for unauthorized purposes, including parking funds and routing transactions.

 

"The bank had levied charges for non-maintenance of minimum balance in certain savings accounts having insufficient/zero balance and opened and operated certain internal accounts in the name of its customers for unauthorised purposes like parking funds and routing customer transactions," the RBI said.