Key Points
When scores of companies complained to the Reserve Bank of India (RBI) that they lost hundreds of crores of rupees in currency derivatives manipulatively sold by banks, the central bank slapped the lenders with penalties in the range of Rs 5-15 lakh..
The shift in the magnitude of the penalty between then and now not only captures how RBI has moved from kid gloves to boxing gloves in treating regulatory breaches, but also what is in store for potential violators...
Regulatory actions like stopping a business has much more impact on the regulated entity than mere levying a monetary penalty of some amount, said Srinivasan Varadarajan, non-executive chairman, Union Bank of India..
Historically, the RBI approached penalising the regulated entities based on their overall compliance and not specific violations and the monetary penalties prescribed by laws were also meagre which did not have much impact on the violators even when penalised..
Furthermore, the central bank was also under pressure from external forces to change its way and keep pace with global developments post the Lehman Brothers blow up when banks were fined billions of dollars for violations and India was still stuck in its socialist era of penalties...
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