Effective bank compliance requires equipping individual bank branches to adhere fully to RBI regulations. While KYC, AML, CRR, and SLR are crucial focus areas for branch-level compliance, it extends beyond these domains. RBI regulations encompass aspects such as customer service standards within banks, interest payment procedures on various accounts, Credit Information Companies (CICs) and so on. Failure to comply with any of these regulations may result in penalties imposed by the RBI. This article explores additional reasons why banks face penalties for non-compliance, highlighting issues that can be addressed at the branch level.
1. Inoperative Dormant Accounts
Urban Cooperative Banks (UCBs) are advised to prominently display a list of unclaimed deposits and inactive accounts on their websites or within branches. Accounts dormant for ten years or more should be included in this listing. For savings and current accounts, dormancy is defined as no transactions occurring for over two years. If account holders provide reasons for account inactivity, banks must maintain the account’s active status for an additional year before reclassifying it as dormant. It is prohibited for banks to impose penalties for non-maintenance of minimum balances in dormant accounts. Non-compliance with these directives, such as failing to conduct annual reviews, make efforts to locate account holders, or display lists of unclaimed deposits, can result in penalties under Section 47(A) of the Banking Regulation Act, 1949.
2. Depositor Education and Awareness Fund Scheme
Established under the Banking Regulation Act, 1949, The Depositor Education and Awareness Fund Scheme, 2014, empowers the Reserve Bank of India to create The Depositor Education and Awareness Fund. It became effective from May 24,2014. The funds allocated to the DEA Fund encompass dormant balances from various deposit accounts maintained with banks, such as savings, fixed-term, recurring, and current accounts, which have remained inactive for a period of ten years or more. Additionally, unclaimed sums held for the same duration, including outstanding telegraphic transfers, demand drafts, loan accounts, and margin money against various securities, are also included. This encompasses a wide range of financial instruments, including but not limited to, prepaid cards, foreign currency deposits converted to rupees, and other amounts as designated by the Reserve Bank periodically. These measures support initiatives for depositor education and awareness. Non-compliance results in penalties under the provisions of section 47A (1) (c) read with sections 46 (4) (i) and 56 of the Banking Regulation Act, 1949.
3. Uploading data to Credit Information Companies
According to the Credit Information Companies (Regulation) Act, 2005 (CICRA), every credit institution must be a member of at least one of the four Credit Information Companies (CICs) registered under the RBI. These include Credit Information Bureau (India) Limited, Equifax Credit Information Services Private Limited, Experian Credit Information Company of India Private Limited, and CRIF High Mark Credit Information Services Private Limited. Membership in a CIC is mandatory for all credit institutions. Therefore, branches must ensure compliance by becoming members of at least one CIC among the four registered entities under the RBI, thereby upholding credit information transparency and regulatory compliance.
4. Shortfall in minimum balance
Urban Cooperative Banks (UCBs) are mandated to notify customers clearly via SMS, email, or letter in the event of a default in maintaining the minimum balance in savings bank accounts. Failure to restore the minimum balance within one month from the notice will result in the imposition of penal charges. These charges must be approved by the bank’s Board and structured as a fixed percentage directly proportional to the shortfall between the actual and minimum balance. Additionally, they should be reasonable and aligned with the average cost of providing services to customers. Penal charges can only be recovered after a reasonable period, not less than one month from the notice, with intimation to the account holder. Importantly, banks must ensure that these charges do not lead to a negative balance in the savings account solely due to non-maintenance charges. Non-compliance with these directives may result in penalties under Section 47 A (1) (c) of the Banking Regulation Act, 1949, as per the powers vested in the RBI.
5. Interest payment
The functions of a bank branch concerning interest payments encompass several essential aspects. Firstly, the branch must establish a comprehensive policy on interest rates for deposits, approved by the Board of Directors or a delegated committee, ensuring transparency and consistency. Secondly, it should ensure uniformity and non-discrimination in interest rates across all branches and for all customers, without favoritism. Thirdly, adherence to disclosed interest rates is paramount, with the branch strictly following the pre-disclosed schedule to maintain reasonable, consistent, and transparent rates. Additionally, interest rates offered should be available for supervisory review and scrutiny as necessary, promoting transparency and accountability. Precision in interest payments is emphasized, with all transactions rounded off appropriately to ensure accuracy. Lastly, the branch must handle deposits maturing on non-business days diligently, ensuring correct interest payments according to the specified terms. The penalty has been imposed in exercise of powers vested in RBI conferred under section 47 A (1) (c) read with sections 46 (4) (i) and 56 of the Banking Regulation Act, 1949 (BR Act).
6. Customer service
At the branch level, customer service in banking encompasses various critical functions. This includes establishing a comprehensive policy on interest rates for deposits, approved by the Board of Directors or a delegated committee, to ensure transparency and consistency across all branches and customer interactions. Furthermore, maintaining uniformity and non-discrimination in interest rates among all customers and branches is paramount, without favoritism or discrepancies. Adherence to disclosed interest rates is strictly enforced. Additionally, the branch must diligently handle deposits maturing on non-business days, ensuring correct interest payments according to specified terms to enhance overall customer satisfaction and trust.
The multifaceted nature of branch-level diligence and compliance underscores the necessity for a robust compliance software tailored for branch operations. Such a software solution designed specifically for branch-level operations would streamline processes, enhance efficiency, and mitigate the risk of non-compliance. By automating tasks related to regulatory adherence, customer communication, interest calculations, and account management, such software can empower branch managers and staff to focus on delivering exceptional customer service while maintaining regulatory compliance. Moreover, a compliance software can serve as a centralized platform for monitoring, tracking, and reporting on various compliance-related activities, providing real-time insights and analytics to branch managers and regulatory authorities. This proactive approach not only minimizes the risk of penalties but also fosters a culture of transparency, accountability, and trust within the banking institution.
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Copyright © 2023 Annuity Risk India Pvt. Ltd.