Whalesbook
RBI Levies Lighter Fines on Banks in 2025 Amidst Rising Cases
The Reserve Bank of India (RBI) has opted for smaller penalties on lenders in 2025, with the median fine significantly reduced compared to the preceding two years. This trend emerged despite an increase in the total number of penalty instances.
Shifting Penalty Landscape
A Mint analysis reveals that while the number of banks penalized by the RBI rose from 26 in 2023 to 30 in 2024, and further to 38 in 2025, the size of the fines decreased. The total penalties collected from public sector, private sector, foreign banks, small finance banks, and payments banks amounted to ₹25.5 crore in 2025. The median fine for the year stood at ₹55.7 lakh.
In contrast, the RBI had imposed total fines of ₹29.5 crore in 2024 and ₹53.3 crore in 2023. The median fines in these preceding years were notably higher, recorded at ₹98.2 lakh in 2024 and ₹1 crore in 2023, according to the data.
Expert Perspectives on Regulatory Approach
Vivek Iyer, partner and national leader of financial services-risk advisory at Grant Thornton Bharat, noted that the RBI's framework for fines is not publicly detailed and is designed to instill seriousness and serve as an example. He emphasized that fines are a last resort, following showcase notices and unsatisfactory responses from entities.
Iyer suggested that the RBI is adopting a more consultative approach, especially at a time when the government is promoting deregulation and optimum regulation. This indicates that while the RBI remains firm on compliance standards, its engagement with regulated entities is becoming more collaborative.
Banks' Increased Compliance Efforts
Sanjay Agarwal, senior director at Care Ratings, attributed the lower fines partly to enhanced compliance measures by banks. He stated that banks have learned from past penalties and are now leveraging technology and increasing staffing in compliance departments. The sustained focus from the regulator and substantial fines in previous years are now yielding results, fostering greater awareness among banks about regulatory expectations.
Notable Penalties and Unclear Calculation
In 2025, Jammu and Kashmir Bank received the largest single fine of ₹4.3 crore, imposed in two tranches. The January penalty stemmed from issues like allowing basic savings deposit holders to open additional savings accounts and sanctioning loans against government subsidies. The December fine was due to the bank's failure to escalate certain rejected complaints to the internal ombudsman and for not sending final redressal letters to customers.
Despite these trends, the exact methodology for calculating penalty amounts by the RBI remains unclear. An anonymous analyst pointed to the ₹58.9 crore fine on ICICI Bank in March 2018 for non-adherence to directives on selling securities from the held-to-maturity portfolio as an example of a significant penalty where calculation specifics are not transparent. Banks classify debt securities into categories like held-to-maturity, available-for-sale, and held-for-trading, with HTM securities intended to be held until maturity.
Impact
This development suggests a potentially less punitive, more collaborative regulatory environment for Indian banks, which could positively affect their profitability by reducing compliance costs and fines. However, the RBI's tolerance for non-compliance remains unchanged, meaning banks must continue to prioritize robust internal controls and adherence to regulations. The trend might also signal increased maturity in banking sector compliance.
Impact rating: 7/10
Difficult Terms Explained
- Median fine: The middle value in a set of fines when arranged in ascending or descending order. Half of the fines are smaller than the median, and half are larger.
- Public sector banks: Banks where the majority stake is held by the government.
- Private sector banks: Banks where the majority stake is held by private shareholders.
- Foreign banks: Banks incorporated outside India but operating branches within the country.
- Small finance banks: Niche banks licensed by the RBI to provide financial services to unbanked and underbanked segments.
- Payments banks: A differentiated bank that provides limited banking services but cannot issue loans or credit cards.
- Showcase notice: A formal notification issued by a regulator to an entity asking it to explain its conduct or provide reasons why a penalty should not be imposed.
- Deregulation: The reduction or elimination of government regulations.
- Optimum regulation: Finding the right balance between necessary oversight and avoiding excessive or burdensome rules.
- Non-compliance: Failure to adhere to rules, laws, or regulations.
- Held-to-maturity (HTM) portfolio: A classification for debt securities that a bank or investor intends to hold until their maturity date.
- Available-for-sale (AFS): A classification for investment securities that can be sold before maturity but are not actively traded.
- Held-for-trading (HFT): A classification for investment securities that are bought and sold frequently with the goal of profiting from short-term price movements.