RBI Revokes Registration of Four NBFCs, Imposes Penalty on IDFC First Bank

The Reserve Bank of India (RBI) took significant regulatory actions on Friday, including the cancellation of registration for four non-banking financial companies (NBFCs) and imposing a monetary penalty on IDFC First Bank Limited.

The RBI announced the cancellation of the registration certificate for four NBFCs, namely Kundles Motor Finance Private Limited based in Uttar Pradesh, Nithya Finance Limited in Tamil Nadu, Bhatia Hire Purchase Pvt Ltd in Punjab, and Jiwanjyoti Deposits and Advances Limited in Himachal Pradesh. As a result, these entities are prohibited from conducting the business of a Non-Banking Financial Institution as defined in the RBI Act.

In addition to the NBFC cancellations, the RBI imposed a monetary penalty of Rs 1 crore on IDFC First Bank Limited for non-compliance with specific directives related to ‘Loans and Advances – Statutory and Other Restrictions’. This penalty was imposed under the authority granted to the RBI by the Banking Regulation Act of 1949.

The penalty on IDFC First Bank stemmed from supervisory findings indicating non-compliance with RBI directions and statutory provisions, concerning the sanctioning of term loans to a public sector undertaking for infrastructure projects. The RBI noted that the bank had failed to conduct due diligence on the viability and bankability of these projects, leading to repayment and servicing of term loans from budgetary resources, instead of project-generated revenues.

The RBI’s decision to impose the penalty followed a notice issued to the bank, prompting it to provide reasons why such action should not be taken. After reviewing the bank’s response and oral submissions during a personal hearing, the RBI concluded that the bank’s actions warranted the imposition of a monetary penalty.

It’s essential to note that the RBI clarified that the penalty is based on regulatory compliance deficiencies and does not challenge the validity of any transactions or agreements between the bank and its customers. Additionally, the imposition of the monetary penalty does not preclude further actions that the RBI may initiate against the bank.

These regulatory measures underscore the RBI’s commitment to maintaining the integrity and stability of the financial system, ensuring compliance with established guidelines and directives, and safeguarding the interests of stakeholders.