The Reserve Bank of India (RBI) has, by an order dated January 30, 2023, imposed a monetary penalty of ₹39.50 lakh (Rupees Thirty-nine Lakh Fifty Thousand only) on North East Small Finance Bank Limited (the bank) for non-compliance with the  directions issued by RBI on ‘Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances - Divergence in NPA Accounts’ and ‘Prudential Guidelines on Capital Adequacy and Market Discipline-New Capital Adequacy Framework (NCAF)’. This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47 A (1) (c) read with Section 46 (4) (i) of the Banking Regulation Act, 1949.

This action is based on 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.

Background

The Statutory Inspection of the bank was conducted by RBI with reference to its financial position as on March 31, 2020, and the examination of the Inspection Report (IR) and all related correspondences pertaining to the same revealed, inter alia, the bank failed to (i) classify borrowal accounts as NPAs, leading to significant divergence between the reported and assessed NPAs as on March 31, 2020 and (ii) make Pillar 3 disclosures for FY 2019-20 in its Annual Report and website. In furtherance to the same, 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 said directions, as stated therein.

After considering the bank’s reply to the notice and the oral submissions made during the personal hearing, RBI came to the conclusion that the aforesaid charges of non-compliance with the aforesaid RBI directions were substantiated and warranted imposition of monetary penalty, to the extent of non-compliance with such directions.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2022-2023/1663