RBI Slaps ₹2 Lakh Penalty on Lunawada People's Bank for Defective Loan Practices
The Reserve Bank of India (RBI) has imposed a monetary penalty on The Lunawada People's Co-operative Bank Ltd. in Gujarat. The penalty, amounting to ₹ 2 lakh, addresses the bank's non-compliance with specific regulatory directions. This action underscores the RBI's vigilance concerning lending practices within cooperative banking institutions.Monetary Penalty Imposed on Co-operative Bank
The RBI issued the order on May 22, 2026, penalizing The Lunawada People's Co-operative Bank Ltd., located in Dist. Mahisagar, Gujarat. The penalty was levied for failing to adhere to RBI directions concerning 'Loans and advances to directors, their relatives, and firms / concerns in which they are interested'.The RBI exercised its powers under the Banking Regulation Act, 1949. The legal basis for this action includes Section 47A(1)(c) read with Sections 46(4)(i) and 56 of the Act. The process followed an official inspection based on the bank's financial position as of March 31, 2025.
Findings of Regulatory Non-Compliance
Supervisory findings revealed deficiencies in the bank's regulatory adherence, leading to the notice of show cause. After considering the bank's reply and hearing arguments, the RBI determined specific breaches warranted the monetary penalty.Specifically, the RBI sustained the charge that the bank sanctioned various loans. These loans were structured in instances where the relatives of the bank's directors were acting as guarantors. This action highlights a lapse in compliance concerning regulatory guidelines for advances.
RBI Clarifies Scope and Future Action
RBI emphasized that this penalty is solely based on deficient regulatory compliance. The directive explicitly states that the penalty is not intended to challenge the validity of any transaction or agreement made between the bank and its customers.Furthermore, the central bank confirmed that the imposition of the monetary penalty is without prejudice to any other action it may deem necessary against the bank. This reinforces the comprehensive nature of RBI's regulatory oversight in the banking sector.
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