RBI slaps fine of Rs 2.91 crore on Axis Bank and HDFC Bank: All details

In a significant move, the Reserve Bank of India (RBI) has imposed penalties on Axis Bank and HDFC Bank for lapses in regulatory and statutory compliance. The fines, which amount to a total of ₹2.91 crore, highlight the central bank's ongoing efforts to ensure that financial institutions adhere to prescribed guidelines.

The RBI levied a penalty of ₹1.91 crore on Axis Bank for violations that included contraventions of the Banking Regulation Act and non-compliance with specific RBI directions related to interest rates on deposits, Know Your Customer (KYC) norms, and collateral-free loans for agriculture. Meanwhile, HDFC Bank faced a ₹1 crore fine for failing to comply with directions concerning interest rates, customer service practices, and the use of recovery agents.

Axis Bank: Key regulatory failures

Axis Bank’s penalty stems from a supervisory evaluation conducted by the RBI based on its financial position as of March 31, 2023. Upon reviewing the bank’s activities, the RBI found several areas of non-compliance. One of the primary issues was the opening of savings deposit accounts in the names of ineligible entities, a direct violation of regulatory norms.

Additionally, Axis Bank was found to have issued multiple customer identification codes to certain clients instead of assigning a Unique Customer Identification Code (UCIC), which is mandatory to avoid duplication and ensure proper monitoring of accounts.

The bank also violated guidelines concerning agricultural loans. RBI regulations prohibit banks from asking for collateral for agricultural loans up to ₹1.60 lakh, but Axis Bank had obtained such collateral in certain cases.

Lastly, a wholly-owned subsidiary of Axis Bank was found to be engaged in providing technology services—an activity that is not permissible for a banking company. This contravention added to the overall penalty levied by the central bank.

HDFC Bank: Regulatory shortcomings

In the case of HDFC Bank, the RBI’s investigation was based on its financial position as of March 31, 2022. The central bank uncovered several violations, including the offering of gifts, specifically covering the first-year premium for complimentary life insurance, which exceeded the permissible limit of ₹250.

Moreover, HDFC Bank was found to have opened savings accounts in the names of ineligible entities, a violation similar to that of Axis Bank. Another significant failure was the bank’s inability to ensure that customers were not contacted by bank officials outside the permitted time frame of 7 am to 7 pm.

RBI's Stance on Compliance

While the RBI has been stringent in penalising both banks, it clarified that these penalties are based on lapses in regulatory compliance and are not reflective of the validity of any transactions or agreements between the banks and their customers. The central bank’s message is clear—financial institutions must adhere strictly to guidelines to maintain transparency, protect customers, and uphold the integrity of the banking system.

The penalties serve as a reminder to all banks to stay vigilant and maintain high standards of compliance to avoid such financial and reputational damage in the future. Both Axis Bank and HDFC Bank have accepted the fines and are expected to take corrective actions to avoid future infractions.

For customers, this action from the RBI is a reassurance that regulatory oversight remains a priority to ensure fair banking practices across the country.