RBI Cracks the Whip: Four South Indian Co-op Banks Penalized for Regulatory Lapses

Image Source: Indian Cooperative

Key Highlights

The Reserve Bank of India (RBI) has imposed monetary penalties on four South Indian cooperative banks for disregarding regulatory guidelines, upholding its commitment towards financial prudence and good governance in the banking sector. The penalties, issued on June 23, 2025, are part of the central bank's ongoing process of enhancing compliance in India's vast cooperative banking network.

Who Was Punished and Why

The penalized banks are Hyderabad District Co-operative Central Bank Ltd. and Karimnagar District Co-operative Central Bank Ltd. of Telangana, Chittoor Co-operative Town Bank Ltd. of Andhra Pradesh, and Karnataka Co-operative Bank Ltd. of Karnataka.

All the banks were fined Rs 1 lakh for defaults under the Banking Regulation Act, 1949. The main offenses were under Section 20 read with Section 56, which is against advances and loans to directors and related parties—sectors most prone to conflict of interest.

Chittoor Co-operative Town Bank was penalized for non-adherence to RBI guidelines for urban cooperative banks, i.e., exposure norms and Know Your Customer (KYC) guidelines.

Karnataka Co-operative Bank was also charged equivalent penalties for default under Section 47A(1)(c) and related provisions.

Regulatory Setting and Industry Influence

The RBI made it clear that the penalties were for regulatory failures only. They do not dispute the legality of the business transactions of the banks with customers.

The move is part of a broader crackdown: between December 2024 and May 2025, 118 cooperative banks faced enforcement action, reflecting persistent compliance issues in the sector.

These measures are meant to act as deterrents, particularly after previous crises such as the one at PMC Bank, and are meant to restore depositor confidence and systemic stability. The RBI continues to emphasize the need for good governance in rural and weaker section cooperative banks, implying that regulatory vigilance will be at high levels.

Sources: Indian Cooperative, Moneylife, FinTech BizNews, RBI Press Releases