RBI Imposes Rs. 1 Crore Penalty on State Bank Of India for Violating Norms

The Reserve Bank of India (RBI) imposed a monetary penalty of Rs. 1 crore on the country’s largest lender State Bank of India (SBI) For holding shares in the borrower companies of an amount exceeding 30 per cent of the paid-up share capital of those companies. The RBI imposed the penalty for the contravention of sub-section (2) of section 19 of the Banking Regulation Act, 1949, according to its statement said, November 26.

Sub-section (2) of the Banking Regulation Act, 1949, states that no banking company can hold shares in any company, as pledgee, mortgagee or absolute owner, of an amount exceeding 30 per cent of the paid-up share capital of that company or thirty per cent of its own paid-up share capital and reserves.

RBI carried out an inspection of the state-run lender’s ‘financial positions’ as on March 31, 2018 and March 31, 2019, and also examined the risk assessment reports, inspection report.

“….the examination of the risk assessment reports, inspection report and all related correspondence pertaining to the same, revealed, inter-alia, contravention of sub-section (2) of section 19 of the Act to the extent the bank held shares in borrower companies, as pledgee, of an amount exceeding thirty per cent of paid-up share capital of those companies,” said RBI in its statement.

Subsequently, RBI issued a notice to State Bank of India, asking why the penalty should not be imposed on it for the contravention of the directions. After examining the bank’s response to the notice, the RBI said it “came to the conclusion that the charge of contravention of the aforesaid provisions of the Act was substantiated”, and then imposed the monetary penalty.