Introduction:

This FIG Paper highlights recent trends in enforcement actions of the Reserve Bank of India (“RBI”) against different financial institutions, which has seen a significant 88% rise since 2021.

Understanding the RBI’s enforcement actions on market participants is crucial to outlining regulatory priorities and strategies for financial institutions. The benefit of such an exercise is two-fold: first, to equip financial institutions to understand the regulator’s approach, which in turn would help align businesses with the regulator’s expectations; and second, it enables financial entities to anticipate and adapt to regulatory changes more efficiently.

Parameters

Our analysis below covers the RBI’s enforcement action from April 2022 to June 2024 (“Review Period”), basis penalties imposed on banks, non-banking financial companies (“NBFCs”), payment system operators (“PSO”), and credit information companies (“CIC”), excluding any quantum of penalty having monetary value below INR 1 lakh (~USD 1,200) (“Filtering Criteria”). The objective of this paper is to focus on macro trends in relation to the RBI’s enforcement actions on key players in the regulated financial market, which is further benchmarked to global trends during the Review Period.

Enforcement Trends:

Conclusion & Way Forward:

The trends and patterns of enforcement actions by the RBI are reflective of its regulatory philosophy in recent times. Average penalties for high stakes violations in relation to lending, KYC, and operational risks tend to be high, signalling the RBI’s areas of focus and concern, as well as where the cost of non-compliance is high.

The RBI, like other Asian regulators, has not only been imposing higher fines, but also publicly imposing operational restrictions and remediation instructions. To pass muster with the regulator, regular internal audits of operations by market participants should include comprehensive stress testing of infrastructure, stricter review of outsourcing agreements and agent activity, as well as double-checking fraud reporting compliances and protocols.

Prioritising the understanding of these enforcement trends is beneficial to market participants to glean regulatory expectation and allow institutions to do the all-important cost benefit analysis of compliance, which can only hold them in good stead.