An aggressive RBI is giving India's errant banks a hard time

The news of the Reserve Bank of India (RBI) penalising Karur Vysya Bank for non-compliance of its directives comes right after action against Bandhan Bank and Yes Bank. The RBI has imposed a penalty of Rs 5 crore on Karur Vysya Bank for non-compliance with its directions on Income Recognition and Asset Classification (IRAC) norms, reporting of frauds, and on the need for discipline at the time of opening of current accounts. Shape up or ship out. That's the stern message the RBI is sending to the banks. After mounting non-performing assets (NPAs) threatened India's banking sector, especially public-sector banks, the Reserve Bank of India (RBI) has brought banks under close scrutiny. Those who step out of line are now sure to get quick punishment. Below are a few prominent cases that highlight the RBI's aggressive stance:Bandhan Bank The RBI has barred Bandhan Bank from opening new branches, and also ordered freezing of the bank's CEO salary over failure to stick to shareholding rules. Because the bank was not able to bring down the shareholding of the owner to 40 percent as required under the licensing condition, the RBI has withdrawn general permission to open new branches. The remuneration of the MD & CEO of the bank stand frozen at the existing level.Yes BankRecently, the RBI decided to not let Rana Kapoor stay on as MD & CEO of Yes Bank. In its official communication to the Yes Bank board, the RBI cited specific reasons for not letting Kapoor continue in his current post beyond January 31, 2019, according to an ET Now report. These reasons were: "weak compliance culture in Yes Bank"; "weak governance in Yes Bank"; and "wrong asset qualification". This is perhaps the first time when a bank, perceived to be promoter-driven, will lose its original promoter having control over operations. Axis BankAnother prominent example from this year of RBI drawing the line for a bank is Axis Bank. In April this year, the RBI asked the Axis Bank board to reconsider the fourth three-year term it gave CEO Shikha Sharma last year. The reasons cited included the bank’s performance and its deteriorating asset quality. Axis Bank has seen a spurt in non-performing assets (NPAs) by 336% in the past three years. The bank, which reported gross NPAs of Rs 1,173 crore at end of December 2009, saw them jump to Rs 25,001crore at end of December 2017. Gross NPA ratio, which was at 1.23% in December 2010, is now at 5.28%. The bank flourished under Sharma’s leadership until things took a turn for the worse after RBI announced its asset quality review in December 2015.

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