Page 9 - Banking Finance February 2021

RBI CORNER

Finance for violating RBI's directions on are being done for so many years, RBI regulatory compliance and is not
fair practices code (FPC) and couldn't avert a crisis. It has been, intended to pronounce upon the
outsourcing of financial services by a therefore, discussed that RBI should validity of any transaction or
non-banking financial company. not go by headline figures and should agreement entered into by the bank
instead have multiple indicators to with its customers.
The central bank said Bajaj Finance
warn them about impending stress in
violated a "specific direction to the The bank did not comply with "certain
the system. Indicators like credit
company to ensure full compliance with provisions of directions contained in the
disbursement, adoption of information
FPC in letter and spirit," and that it 'Reserve Bank of India (Interest Rate
technology across banks, etc., can be
failed to ensure "that its recovery on Deposits) Directions, 2016'," said
agents did not resort to harassment or looked at for a comprehensive stress the statement.
intimidation of customers as part of its test," the person cited earlier said. The penalty has been imposed in
debt collection efforts and thereby exercise of powers vested in the RBI
failing to adhere to the aforesaid RBI advises Banks to under the provisions of Section 47 A (1)
directions issued by RBI. There were ensure independence in (c), read with Section 46 (4) (i) of the
also persistent/repeat complaints Banking Regulation Act, 1949.
about recovery and collection methods internal audit
The RBI said that the statutory
adopted by the company," the central The Reserve Bank of India has asked inspection of the bank with reference
bank said in a notification. banks to ensure that the internal audit to its financial position as on March 31,
function has sufficient authority, 2019 and the Risk Assessment Report
RBI board favours new stature, independence and resources revealed non-compliance with certain
to enable internal auditors carry out
stress-test formula their assignments with objectivity. It directions issued by the RBI.

The Central Board of the RBI wants also emphasised that this function The apex bank issued a notice to the
banking system stress tests to include cannot be outsourced. bank advising it to show cause as to
several parameters in addition to non- These directives are aimed at why penalty should not be imposed on
performing assets (NPAs), a person strengthening governance it for non-compliance with the
aware of the matter said. directions.
arrangements in banks under the Risk-
The board has discussed doing away Based Internal Audit (RBIA) After considering the bank's reply to
with the singular focus on NPAs in the Framework. the notice, oral submissions made in
bi-annual stress tests for RBI's the personal hearing and examination
The central bank said the Head of of additional submissions, the RBI
Financial Stability Report (FSR), the
Internal Audit (HIA) should be a senior concluded that the charge of non-
person cited above said on condition of executive of the bank with the ability
anonymity, adding multiple indicators to exercise independent judgment. compliance with its directions was
are needed to identify emerging stress The HIA, as well as the internal audit substantiated and warranted
in the system. imposition of monetary penalty, the
function, should have the authority to statement said.
In its latest FSR released on 11 January, communicate with any staff member
RBI said gross NPAs could rise to 13.5% and access to all records or files. RBI panel to examine
under the baseline stress scenario by
30 September 2021, the highest in RBI imposes Rs. 2-crore digital lending risks
more than 22 years, up from 7.5% as The Reserve Bank of India has said it
of 30 September 2020. It is predicted penalty on Deutsche Bank has formed a working group to study
to almost double to 14.8% under a RBI has imposed a penalty of Rs 2 crore aspects of digital lending by regulated
severe stress scenario. on Deutsche Bank AG for non- and unregulated players, including
compliance with certain directions mobile apps.
"The issue has been discussed at the
issued by the central bank.
meetings of the central board and The move indicates RBI's intent to look
board of financial supervision. An RBI statement said that the action into the practices followed by lending
Irrespective of the stress tests, which is based on the deficiencies in apps, even those that do not have a

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