More than a rap on the knuckles

Mint Road's enforcement framework is turning focus on governance premium, reports Raghu Mohan

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Penalties imposed by the Reserve Bank of India (RBI) in FY24 more than doubled to ₹86.1 crore in 281 instances (it was ₹40.4 crore and 211 in FY23). Its annual report has it that fiduciary censure was up across bank groups — except for foreign banks and small finance banks — and such attention was more on state-run and private banks. Compared to what's slapped by global financial regulators which run into millions of dollars, the sums on our turf are paltry; it carries the risk of being taken as part of operating expenses. The highest till date is ₹58.9 crore on ICICI Bank in March 2018 for failure to adhere to directives regarding the sale of securities from its held-to-maturity bucket.

What should be the price regulated entities (REs) and their top brass have to foot on slip-ups, especially in repeat cases?

New approach

The woes at IndusInd Bank have put the spotlight back on a key initiative the banking regulator's Enforcement Department set rolling in FY24: scale-based approach to enforcement based on a RE's size, complexity, interconnectedness, range of activities, and also the seriousness of violations. (This was a follow-through on then RBI governor Shaktikanta Das's meeting with the boards of state-run and private banks on May 22 and 29, 2023 to discuss issues related to governance, ethics, the role of the boards, and supervisory expectations). And on its circular on the 'Compensation of whole-time directors, CEOs, material risk-takers and control function staff in banks' (issued on November 4, 2019). While Mint Road said this will kick in only for pay-cycles beginning from or after April 1, 2020, it can apply to prior slip-ups by way of clawback (as it basically fine-tuned a circular of January 13, 2012 which held so). This was tested during the Yes Bank fiasco, but these matters can be litigated and can run into years before settlement.