RBI Cracks Down on Tamilnad Mercantile Bank, DCB Bank for Regulatory Violations

RBI Cracks Down on Tamilnad Mercantile Bank, DCB Bank for Regulatory Violations

The Reserve Bank of India (RBI) has cracked down on two banks, Tamilnad Mercantile Bank Limited and DCB Bank Ltd., for failing to comply with regulations related to interest rate setting and borrower information reporting. These non-compliances resulted in the RBI imposing a penalty of ₹1.38 crore on Tamilnad Mercantile Bank and ₹63.6 lakh on DCB Bank.

RBI discovered that the Tamilnad Mercantile Bank failed to use an external benchmark to determine interest rates on specific MSME loans. This could lead to inconsistencies and potentially disadvantage borrowers.

The bank applied multiple interest rate references within the same loan category. This lack of standardisation can create confusion and potentially impact loan pricing fairness.

Further, the Tamilnad Mercantile Bank did not calculate loan interest rates based on the correct benchmark rates. This could result in borrowers unknowingly paying incorrect interest amounts.

Moreover, the bank submitted inaccurate external credit ratings for some borrowers to the Central Repository of Information on Large Credits (CRILC). This repository plays a crucial role in credit risk assessment, and inaccurate information can potentially affect loan approvals or interest rates for borrowers.

Similarly, the DCB Bank neglected to adjust interest rates on specific floating-rate loans linked to the Marginal Cost of Lending Rate (MCLR) at the mandated intervals. This could potentially impact the interest burden borne by borrowers.

Additionally, the DCB Bank did not set interest rates for some retail and Micro, Small and Medium Enterprises (MSME) loans based on an external benchmark as mandated by regulations. This benchmark system aims to ensure transparency and fairness in interest rate setting.

The RBI clarified that these penalties aim to address regulatory compliance shortcomings and do not necessarily reflect the validity of any transactions or agreements between the banks and their customers.