Reserve Bank of India (RBI) Friday announcement that he imposed a fine of 1 crore on the State Bank of India (SBI) for having held “shares in borrowing companies, as a pledgee, in an amount greater than 30% of the released share capital of these companies ”.

Section 19 of the Banking Regulation Act 1949 prevents a banking company from owning more than 30 percent of the paid-up share capital of a company, whether as a mortgagee, pledgee or absolute owner. In a press release, the RBI said it had carried out statutory inspections for the prudential assessment of the SBI with respect to its financial position as at March 31, 2018 and March 31, 2019, as well as one of the risk assessment reports. and inspection. The report found that the SBI had acted in violation of article 19.

Additionally, in light of the SBI’s transgressions, the RBI sent a notice to the bank, directing them to justify why a penalty should not be imposed on them for violating Article 19 by owning more than 30% of shares. of released borrowing companies. share capital of these companies. The RBI reviewed the SBI’s response to its opinion, as well as subsequent oral submissions, and concluded that the contravention charge was proven, warranting the imposition of a monetary penalty on the bank.

It should be noted that the RBI has clarified that the imposition of a penalty is solely based on deficiencies in regulatory compliance and is not intended to determine the validity of transactions the bank has entered into with its customers.