MUMBAI: In a significant move, the Reserve Bank of India (RBI) has imposed monetary penalties on two of the country's leading private sector banks, HDFC Bank and Axis Bank, for failing to comply with various regulatory directives.

While Axis Bank has been fined Rs 1.91 crore, for violations of the Banking Regulation Act. The infractions include failures related to 'Interest Rate on Deposits,' 'Know Your Customer (KYC),' and 'Credit Flow to Agriculture, Collateral-Free Agricultural Loans, HDFC Bank faces a penalty of Rs 1 crore for non-compliance with directions related to interest rates, customer service practices, and the use of recovery agents.

Additionally, a subsidiary of Axis Bank was found to be acting as a technology service provider, which contravenes existing regulations for banking institutions.

HDFC Bank's penalties established on RBI’s investigation were based on its financial position as of March 31, 2022 and stem from several violations including providing gifts to depositors, which included covering the first-year premium for complimentary life insurance policies, a practice that raised regulatory concerns.

Following the announcement of the fines, shares of both banks experienced slight fluctuations in the stock market. On BSE Axis Bank's shares closed almost at the previous day of Rs 1,186.05, with hardly any loss, while HDFC Bank's shares ended at Rs 1644.35 with an almost negligible loss of Rs 6.25.

RBI has clarified that these fines are solely due to lapses in regulatory compliance and do not reflect the validity of any transactions or agreements between the banks and their customers. However, the central bank's vigilant oversight is crucial in ensuring that banks operate within the established guidelines, ultimately benefiting the broader economy and protecting consumer interests.