Indian Bank, Mahindra Finance in trouble as RBI imposes penalties

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Regulatory action

The Reserve Bank of India (RBI) has taken stringent regulatory action against two major financial institutions, Indian Bank and Mahindra & Mahindra Financial Services, for non-compliance with specific banking regulations. Indian Bank has been fined ₹1.61 crore for violating provisions of the Banking Regulation Act. The violations include non-compliance with directions related to interest rates on loans, the Kisan Credit Card (KCC) scheme, and lending norms related to the MSME (Micro, Small and Medium Enterprises) sector.

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Mahindra & Mahindra Financial Services

In a separate announcement, the RBI confirmed a penalty of ₹71.30 lakh imposed on Mahindra & Mahindra Financial Services, a leading Non-Banking Financial Company (NBFC). This action was taken due to non-compliance with certain regulatory guidelines. The RBI emphasized that the penalties imposed are strictly due to compliance deficiencies and should not be interpreted as questioning the validity of any business agreement or financial transaction these institutions have with their customers.

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Cancelled the banking license

Besides imposing penalties, the RBI has also cancelled the banking license of the Imperial Urban Co-operative Bank based in Jalandhar. The central bank stated that this action was necessary due to the bank's inadequate capital and lack of earning prospects. Following this action, the Registrar of Cooperative Societies, Government of Punjab, has been requested to initiate winding-up proceedings and appoint a liquidator for the bank's operations.

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Ajanta Urban Co-operative Bank

Earlier, on April 22, the RBI took similar action against the Aurangabad-based Ajanta Urban Co-operative Bank. The reasons were identical: inadequate capital and poor earning capacity. Such actions exemplify the RBI's continuous monitoring and its endeavor to protect depositors' interests while maintaining the stability of the Indian financial sector.

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DICGC scheme

Despite the license cancellations, depositors need not panic. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme, each depositor is insured up to ₹5 lakh. In both these banks, about 91.55% of depositors are expected to recover their full deposit amount without any loss. Dhoni creates historic record in IPL cricket