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Karnataka Bank, Bank of India and Saraswat Bank get fined by the RBI for hiding bad loans

Karnataka Bank, Bank of India and Saraswat Bank get fined by the RBI for hiding bad loans
Business2 min read
  • The banking regulator imposed a fine on the three banks for non-compliance with directions issued by RBI.
  • Bank of India will have to pay up ₹5 crore, Karnataka Bank ₹1.2 crore, and Saraswat Bank ₹30 lakh.
  • The penalties have been imposed after an inspection conducted by the Reserve Bank of India (RBI).
The Reserve Bank of India (RBI) has imposed a penalty on three banks for not complying with the regulatory guidelines on identifying bad loans.

Bank Penalty
Bank of India ₹5 crore
Karnataka Bank ₹1.2 crore
Saraswat Bank ₹30 lakh

The penalties have been imposed "for non-compliance with directions issued by RBI on ‘Income Recognition and Asset Classification (IRAC) norms." When the old loans are classified as non-performing assets, the profits posted earlier get reduced.

For Karnataka Bank, this is not the first time that RBI has seen a divergence in the way the NPA was calculated and the way it ought to be. The regulator found that loans worth ₹1,115 crore turned out to be gross NPA a year earlier, the one ended March 2017.

Once the change in unpaid loans was accounted for, and a provision was made, Karnataka Bank had to change its bottomline for FY17 to a loss of ₹95 crore from a reported profit of ₹452 crore. The reported gross NPA for the year ended March 2018 was ₹2,376 crore, about 4.92% of all loans.


Nearly 5% of all loans made by Karnataka Bank were classified as gross NPA at the end of December 2019. The stocks has already lost 16% in the last one month due to the market's risk aversion to banking stocks.

For the state-owned Bank of India, with a market capitalisation of over ₹10,400 crore, the bad loans are already at a whopping 16.3% at the December. The stock is down over 7% for the month of May.


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