RBI fines SBI Rs 1 crore for holding excess shares in borrower companies

SBI allegedly violated the 30% cap on holdings imposed under the Banking Regulation Act

The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs 1 crore on the country’s largest lender, State Bank of India, for holding shares in borrower companies of an amount exceeding 30 per cent of the paid-up share capital of those companies.

Sub-section (2) of the Banking Regulation Act, 1949, says that no banking shall hold shares in any company, whether as pledgee, mortgagee or absolute owner, of an amount exceeding 30 per cent of the paid-up share capital of that company or thirty per cent of its own paid-up share capital and reserves.

“The statutory inspections for supervisory evaluation (ISE) of the bank was conducted by RBI with reference to its financial positions as on March 31, 2018 and March 31, 2019 and the examination of the risk assessment reports, inspection report and all related correspondence pertaining to the same, revealed, inter-alia, contravention of sub-section (2) of section 19 of the Act to the extent the bank held shares in borrower companies, as pledgee, of an amount exceeding thirty per cent of paid-up share capital of those companies”, the central bank said.

The RBI issued a notice to the bank asking it why a penalty should not be imposed on it and upon considering the bank’s reply, it came to the conclusion that the charge of contravention of the Act was substantiated and warranted imposition of monetary penalty on the bank.

This is the second instance in as many months that the regulator has imposed a monetary penalty on SBI. Last month, RBI imposed a penalty of Rs 1 crore on the bank for not complying with directions issued by the central bank with regard to fraud classification and reporting by commercial banks.

This action is based on the 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”, the RBI had said in a statement.