Reserve Bank of India (RBI) is empowered to impose penalties under various statutes applicable to the banking and financial sector. The enforcement process was spread across various supervisory/regulatory departments. In line with the international best practices of separating enforcement action from the regulatory/supervisory process, the Enforcement Department was set up in April 2017 with a view to put in place a structured, rule based approach to identify and process the violations by the regulated entities and enforce the same consistently across entities.
The core function of the Department is to undertake enforcement action against the entities regulated by RBI on the basis of supervisory reports and regulatory references in an objective and consistent manner, to ensure compliance with regulations within the overarching principle of financial system stability, greater public interest and consumer protection. In furtherance of the same, a policy for enforcement containing, inter alia, the factors to be considered for determining the materiality of the violations and for determining the amount of penalty has been framed with the approval of the Board for Financial Supervision.
Initially, the Department was tasked with the responsibility of imposing monetary penalties for violations by the Scheduled Commercial Banks (SCBs) under Section 47A of the Banking Regulation Act, 1949, (B.R. Act), rules framed and directions/regulations issued thereunder and violations falling under the Prevention of Money Laundering Act, 2002 where directions have been issued by RBI. Subsequently, enforcement work pertaining to Co-operative Banks, under the B.R. Act and Non-banking Financial Companies (NBFCs) under Section 58G of the RBI Act, 1934 was also brought under purview of the department, with effect from October 3, 2018. RBI is also empowered to initiate penal action against regulated entities under Section 30 of the Payment & Settlement Systems Act, 2007, Section 22 of Factoring Regulation Act, 2011, Section 25 of Credit Information Companies (Regulation) Act, 2005 and Section 30A of SARFAESI Act, 2002. The department has also been mandated to take enforcement action under the said acts for violations committed by SCBs, Co-operative Banks and NBFCs. Violations of the provisions of FEMA, 1999 attracting monetary penalties and other regulatory or supervisory action would continue to be taken by the respective regulatory/supervisory departments.
The process of enforcement action entails issuance of show cause notice to the regulated entity and providing it with a reasonable opportunity of being heard in line with the principle of natural justice involving ‘due process’. Presently, a three-member Committee of Executive Directors adjudicates the matter and passes a speaking order. The details of the enforcement action are provided through Press Releases and in various publications of RBI.
Currently, the laws enabling RBI to undertake enforcement action empower it to impose monetary penalty only on the regulated entities and not on the individuals in-charge of the entities or responsible for the violations. It also needs to be noted that the enforcement process is not a mechanism for customer grievance redressal. However, complaints involving violations of regulations are examined for possible enforcement action based on scrutiny findings by the concerned supervisory department.
The Department has six Regional Offices located at Ahmedabad, Chennai, Kolkata, Mumbai, Nagpur and New Delhi.
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