Union Bank of India receives a Rs 1 crore fine from the RBI for a loan-related issue

16 Oct 2023 , 02:49 PM

Union Bank of India was fined Rs 1 crore by the Reserve Bank of India (RBI) on Friday, October 13, for failing to follow rules pertaining to ‘Loans and Advances – Statutory and Other Restrictions.’

On October 13, 2023, RBI imposed this fine in accordance with the authority conferred by the Banking Regulation Act of 1949. The fine results from a recent RBI inspection that looked at the bank’s financial standing as of March 31, 2021.

Review findings showed that Union Bank of India had violated RBI regulations when sanctioning a term loan to a firm. The bank specifically approved this loan in place of or as a replacement for budgeted resources allotted for particular projects.

The bank also failed to perform due diligence to evaluate the feasibility and bankability of these projects to make sure that their revenue streams would be adequate to meet debt service requirements. Additionally, budgetary resources were used for the loan’s servicing and repayment.

Following these conclusions, the RBI sent Union Bank of India a letter requesting the bank to explain why a fine shouldn’t be imposed for failing to follow regulatory instructions.

Following a personal hearing and consideration of the bank’s answer to the notice, RBI came to the conclusion that the allegations of non-compliance were true and, as a result, called for the implementation of a financial penalty.

It is significant to note that this RBI action focuses on regulatory compliance shortcomings rather than making a determination about the legitimacy of any transactions or agreements made by the bank with its clients.

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