What fair practice code violation was found?

The company did not disclose its approach for gradation of risk and the rationale for charging different interest rates to different borrower categories in application forms and sanction letters.

Does this penalty affect the validity of the company's customer transactions?

No, RBI clarified that the action is based on regulatory compliance deficiencies and is not intended to pronounce upon the validity of any transaction or agreement with customers.

Home › Circulars › RBI press release 62979

RBI fines Five Star Business Finance ₹6.20 lakh for KYC, fair practice lapses

Q: What specific KYC non-compliance led to this penalty?

The company failed to put in place a robust software for effective identification and reporting of suspicious transactions, which is a requirement under RBI's KYC Directions.

Source: Reserve Bank of India · Press Release prid 62979 · ~2 min read

RBI imposed a ₹6.20 lakh penalty on Five Star Business Finance for failing to put in place robust software for effective identification and reporting of suspicious transactions and not disclosing risk gradation approach and interest rate rationale in loan documents. Action based on statutory inspection with reference to financial position as on March 31, 2025.

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Official RBI source: https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=62979 — summary by BankPulse (bankpulse.ai).

RBI fines Five Star Business Finance ₹6.20 lakh for KYC, fair practice lapses

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