RBI imposed penalty of Rs 1 crore on IDFC First Bank, know why

RBI fines IDFC Bank: The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs 1.00 crore on IDFC First Bank Limited for non-compliance with specific directives concerning 'Loans and Advances – Statutory and Other Restrictions'. This penalty, mandated under the Banking Regulation Act, of 1949, highlights regulatory oversight in ensuring adherence to banking norms.

“Based on supervisory findings of non-compliance with RBI directions / statutory provisions and related correspondence in that regard, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for its failure to comply with the said directions,” the RBI’s press release added. 

The penalty follows the RBI's Statutory Inspection for Supervisory Evaluation (ISE 2022) of IDFC First Bank Limited, assessing its financial standing as of March 31, 2022. Subsequent supervisory findings revealed instances of non-compliance with RBI directives and statutory provisions, prompting regulatory action.

“The bank had sanctioned term loans to a public sector undertaking for financing infrastructure projects, (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 the repayment/servicing of the said term loans was made out of budgetary resources,” the press release by the RBI stated. 

Of particular concern was the bank's approval of term loans for infrastructure projects involving a public sector undertaking. These loans were granted without adequate due diligence on project viability and bankability, resulting in their repayment being sourced from budgetary resources instead of project-generated revenue streams.

While the penalty underscores the importance of regulatory compliance, it's important to note that it does not imply a judgment on the validity of the bank's transactions with its customers. Additionally, the RBI's decision to levy the monetary penalty does not preclude further regulatory actions against the bank, signalling a continued commitment to upholding banking standards and safeguarding financial stability.