What changed
RBI, via order dated June 15, 2026, imposed a monetary penalty of ₹1 lakh on the bank for contravening Section 20 read with Section 56 of the BR Act. The violation involved director-related loans, identified during NABARD's statutory inspection as of March 31, 2025.
What it means for you
This penalty underscores RBI's zero-tolerance for self-dealing in co-operative banks. Lenders must ensure strict compliance with director loan restrictions to avoid similar fines and reputational risk. The action is separate from any other enforcement measures.
What you must do
- Review all director-related loan sanctions and renewals for compliance with Section 20 of BR Act.
- Strengthen internal audit processes to flag any director-connected lending before disbursal.
- Ensure board-level oversight on loan approvals involving directors or their relatives.
- Train credit officers on statutory prohibitions against director loans in co-operative banks.
Who it affects
The Shimoga District Co-operative Central Bank Ltd., All co-operative banks in India, NABARD (as inspecting authority), RBI supervisory teams
What specific violation led to the penalty?
The bank sanctioned or renewed loans to its directors, which is prohibited under Section 20 of the Banking Regulation Act, 1949, as applicable to co-operative banks.
Does this penalty affect the bank's customers?
No, the penalty is for statutory non-compliance and does not invalidate any customer transactions or agreements.
Can RBI take further action against the bank?
Yes, the penalty is without prejudice to any other action RBI may initiate against the bank.