The Reserve Bank of India (RBI) has imposed substantial fines on two financial institutions for regulatory violations. Hong Kong and Shanghai Banking Corporation Limited (HSBC) has been fined ₹66.6 lakh, while IIFL Samasta Finance Limited has been penalized with a fine exceeding ₹33 lakh.

In both cases, the RBI clarified that the penalties were imposed due to deficiencies in regulatory compliance and were not intended to question the validity of any transactions or agreements made by these entities with their customers.

Reasons Behind RBI's Action

According to the RBI, the fines were imposed due to non-compliance with key financial regulations:

• HSBC was penalized ₹66.6 lakh for failing to comply with directives related to Know Your Customer (KYC) norms and interest rates on deposits.
• IIFL Samasta Finance Limited was fined ₹33.1 lakh for violating certain provisions under the Non-Banking Financial Company – Systemically Important Non-Deposit Taking Company and Deposit Taking Company (Reserve Bank) Directions, 2016, along with KYC guidelines.

Regulatory Inspections and Violations

HSBC Case

The RBI conducted an inspection of HSBC’s financial position as of March 31, 2023, during which multiple regulatory lapses were discovered. Following this, a show cause notice was issued to the bank.

Key violations found:

• HSBC had outsourced the management of Anti-Money Laundering (AML) alerts to one of its group companies, which raised compliance concerns.
• The bank failed to report unsecured foreign exchange risks of certain borrowers to credit information companies.
• Savings deposit accounts were opened in the name of ineligible entities, violating RBI norms.

IIFL Samasta Finance Case

A similar inspection of IIFL Samasta Finance Limited’s financial position as of March 31, 2023, revealed regulatory lapses, leading to a show cause notice from the RBI.

Key violations found:

• The company charged interest before the actual loan disbursement or cheque issuance, violating RBI’s ‘Code of Fair Conduct’ guidelines.
• It failed to classify certain loan accounts with dues exceeding 90 days as non-performing assets (NPAs), leading to a breach of RBI regulations.

Final Takeaway

The RBI’s action highlights the importance of strict adherence to banking regulations and compliance standards. These penalties serve as a reminder for financial institutions to ensure transparency, accountability, and proper implementation of RBI guidelines.