RBI plans tougher penalties for banks, including executive pay clawbacks

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RBI plans tougher penalties for banks, including executive pay clawbacks

The Reserve Bank of India (RBI) is set to revamp its penalty framework, potentially increasing fines for banks based on their size, systemic importance, and history of offenses. The updated framework is also expected to introduce measures such as clawing back compensation from CEOs and key management personnel (KMP), alongside mandating additional capital reserves to strengthen risk oversight.

This move comes as part of a broader initiative by the RBI to enhance governance and supervisory practices within the Indian banking sector. In May 2023, RBI Governor Shaktikanta Das led discussions with bank boards emphasizing the need for improved governance and ethical standards.

Recently, on Thursday, November 16, Axis Bank incurred a fine of ₹90.92 lakh (approx. $109,120) due to non-compliance with certain regulatory directives, including inadequate maintenance of customer identification records. This action follows a series of penalties imposed by the RBI in early November against four cooperative banks and a non-banking financial company (NBFC) over various regulatory lapses. Additionally, earlier actions included fines against the State Bank of India for violations related to loans and advances as well as intra-group transaction management guidelines.

The proposed overhaul reflects the RBI's commitment to maintaining fiscal stability and ensuring that banks adhere strictly to regulatory expectations. The changes are aimed at deterring misconduct and reinforcing the accountability of banking executives, which could lead to a more robust financial system in India.

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