RBI penalises Axis Bank, Indian Overseas Bank for non-compliance

Last year Axis Bank had had a major problem with non-performing asset (NPA) divergence post the RBI's annual audit exercise for 2016-17. The apex bank had reclassified as many as 9 accounts with the country's third largest private lender, amounting to a whopping Rs 4,867 crore. Because of this, the bank's NPA had shot up 55% in the declared Q2 results compared to the previous quarter of this fiscal.

As it turns out, Axis Bank is an old hand in under-reporting NPAs. Yesterday, the RBI announced that it had imposed a penalty of Rs 3 crore on Axis Bank for non-compliance with its directions on Income Recognition and Asset Classification (IRAC) norms back in fiscal 2016. According to the RBI statement, "the statutory inspection of Axis bank with reference to its financial position as on March 31, 2016 revealed, inter alia, violations of various regulations issued by RBI in the assessment of NPAs". In fact, the bank's annual report for 2016-17 revealed that the RBI had detected additional gross NPAs of 156% compared to its reported numbers.

Based on the inspection report and other relevant documents, the RBI issued a notice last November advising Axis Bank to show cause as to why penalty should not be imposed on it for non-compliance. "After considering the bank's reply and oral submissions made in the personal hearing, RBI came to the conclusion that the aforesaid charges of non-compliance with RBI directions/ guidelines were substantiated and warranted imposition of monetary penalty," the statement added.

Incidentally, according to long-time analyst Hemindra Hazari, who publishes on Smartkarma, under the Banking Regulation Act (BRA), 1949, mis-statements in accounts can be punishable with imprisonment. Hence, he notes that the RBI penalty of Rs 3 crore" is not even a rap on Axis Bank's knuckles".

However, Axis Bank is not the only bank to have been penalised by the RBI for divergences in NPA classification. Last October, Yes Bank was slapped with a Rs 6 crore fine for the same reason. Since then, big names like SBI and HDFC Bank have stepped forward with their divergence disclosures. So are more RBI penalties in the offing?

In a separate statement, the RBI announced that it had also imposed a Rs 2 crore penalty on the state-owned Indian Overseas Bank for non-compliance with the Know Your Customer (KYC) norms after "a fraud was detected in one of the branches". Last year, the central bank had levied a Rs 5 crore penalty on Syndicate Bank and Rs 2 crore on Union Bank of India for the same reason.

The RBI added that the action on the two banks 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".