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In a move to enforce financial regulations and address compliance issues, the Reserve Bank of India (RBI) has imposed a monetary penalty of ₹2.5 crore on L&T Finance Limited. This regulatory action stems from L&T Finance’s non-compliance with specific provisions outlined in the Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016. The penalty, enforced under relevant sections of the Reserve Bank of India Act, 1934, is not a judgment on the validity of any transactions or agreements between the company and its customers.
The RBI’s decision follows a statutory inspection of L&T Finance Limited, encompassing its financial position as of March 31, 2021, and March 31, 2022. This inspection involved a comprehensive examination of various reports and correspondence. During the inspection, several compliance issues were identified:
- Failure to Inform Borrowers: L&T Finance Limited did not adequately inform its retail borrowers about the risk gradation and the reasoning behind applying different interest rates to various borrower categories in loan application forms or sanction letters.
- Lack of Notification on Rate Changes: The company did not notify borrowers of changes in penal interest rates when they exceeded the initially communicated rates.
- Failure to Disclose Changes in Terms: L&T Finance did not provide notice of changes in loan terms and conditions when charging an annualized interest rate higher than initially communicated at the time of sanction.
Subsequently, the RBI issued a notice to L&T Finance Limited, requesting the company to provide reasons why a penalty should not be imposed for its non-compliance with RBI directions. After reviewing the company’s response to the notice, additional submissions, and oral statements made during a personal hearing, the RBI concluded that there was a substantiated charge of non-compliance.
The monetary penalty of ₹2.5 crore was deemed necessary to address the non-compliance with regulatory provisions. It’s essential to note that this regulatory action is centered on rectifying deficiencies in compliance and does not pass judgment on the validity of specific transactions or agreements between the company and its customers.
This penalty serves as a reminder of the RBI’s commitment to maintaining a robust regulatory framework within the financial sector, ensuring that financial institutions adhere to prescribed guidelines and fulfill their responsibilities towards their customers and stakeholders.
Sources By Agencies
