IDFC First Bank, LIC Housing Finance Penalized by RBI

The Reserve Bank of India (RBI) has sent a strong message to financial institutions by imposing penalties on IDFC First Bank and LIC Housing Finance for non-compliance with regulatory guidelines. In a statement issued on April 5, 2024, the central bank levied a ₹1 crore fine on IDFC First Bank for failing to adhere to its directions on “Loans and Advances – Statutory and Other Restrictions.”

IDFC First Bank due diligence

The RBI’s penalty on IDFC First Bank stemmed from the bank’s approval of term loans for infrastructure projects undertaken by a public sector entity. According to the central bank, IDFC First Bank fell short on due diligence during the loan approval process. This lapse compromised the bank’s ability to assess the project’s financial viability and ensure the projects would generate sufficient revenue to repay the loans. The statement further revealed that repayments were made using budgetary resources, raising concerns about the long-term sustainability of the projects.

LIC Housing Finance penalised for Practices Code Violations

LIC Housing Finance received a ₹49.7 lakh penalty for breaching the Fair Practices Code. The housing finance company failed to disclose critical information in loan application forms and sanction letters. This crucial information included the interest rate offered, the approach used to assess borrower risk, and the justification for applying different interest rates to various borrower categories. LIC Housing Finance also levied pre-payment penalties on housing loans inconsistently. The penalty amount varied depending on whether the borrower used their own funds or funds from another source to pre-close the loan.

RBI Underscores Importance of Regulatory Compliance

These penalties serve as a clear warning to all financial institutions in India. Strict adherence to RBI regulations, including lending norms and the Fair Practices Code, is paramount. Following these guidelines protects both financial institutions and borrowers, fostering a stable and trustworthy financial environment. The RBI’s actions demonstrate its commitment to ensuring a healthy financial ecosystem in India.

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