by Amol Kulkarni and Renuka Sane.
A core function of several Indian regulators is adjudication, which involves investigating potential violations, determining culpability, and imposing appropriate sanctions. In India, most financial sector regulators, including the Securities and Exchange Board of India (SEBI), and the Insurance Regulatory and Development Authority of India (IRDAI), issue reasoned orders outlining the investigation, findings, and the rationale behind the imposed sanctions (SEBI, ADJ; IRDAI, ENF). These orders are not only accessible to the concerned parties but are also made available in the public domain, promoting transparency and accountability. The availability of orders in the public domain has led to important research on the quality of the adjudicatory function at regulators and spawned a debate on how to improve it (Sane et al, 2021, 2022; Aggarwal et al, 2024, 2024A).
The Reserve Bank of India (RBI) is a notable exception (RBI, REG). While it is empowered to impose diverse sanctions on its regulated entities including penalties, suspension and cancellation of licenses, imposition of business restrictions, and supersession of the board, it does not release its orders in the public domain. The RBI discloses only the sanctions and their revocation on regulated entities through press releases (PRs) on its website. This is unlike banking regulators in other jurisdictions who either have to put out their orders in the public domain or argue their side in administrative courts which publish their orders on their websites (FCO, ADJ). The RBI is unique in having the full powers of adjudication without the requirement of transparency in its adjudicatory process or an appropriate appellate review mechanism (RBI, APL). Neither the orders of the RBI nor of its [internal] appellate authorities are available in the public domain. If and when a matter reaches a high court or the Supreme Court, orders of such authorities become available for public reading.
This opacity surrounding the RBI's adjudication process motivates our research. The extensive use of PRs to impose sanctions and a single PR to sanction more than one entity raises questions about clarity in disclosures regarding violations by regulated entities and the consistency of information related to sanctions. While it is a rule of law principle that orders should be put out in the public domain, to ensure know-ability of the law and foster consistency in decision making, we focus on improving at least the content of its PRs. It is easy to think of RBI's PRs as a mere corporate communication function, however, what RBI chooses to disclose by way of PRs is reflective of its broader approach to legal transparency.
In this article, we delve into the information disclosed in the RBI's PRs concerning enforcement actions against regulated entities. Furthermore, we investigate how central banks in different jurisdictions communicate sanctions and the level of detail they provide in their public disclosures. This comparative analysis allows us to benchmark the RBI's practices against international standards and identify best practices that could enhance transparency and accountability. Our analysis can form the basis for improving the RBI's disclosure framework. By adopting a more transparent approach to disclosing enforcement actions, the RBI can foster greater understanding and confidence in its regulatory processes.
Methods
We examine two cases between May 2024 and January 2025 wherein the RBI imposed and revoked sanctions on its regulated entities through PRs. Both cases included more than one entity. We evaluate if the regulator:
- Was consistent in disclosing violations by entities.
- Provided the rationale for imposing sanctions.
- Described the remedial measures taken by the regulated entities which necessitated revoking the sanctions.
We then review practices by other central banks on disclosures of sanctions and offer suggestions for improvement to the RBI.
Brief introduction to the two cases
We examined the imposition and revocation of sanctions on four NBFCs (Case 1) and two asset reconstruction companies (ARCs) (Case 2).
Case 1:RBI's PR dated 17 October 2024 (October PR) sanctioned four unrelated NBFCs to cease and desist from sanction and disbursal of loans (RBI PR, 2024A).
Within a few months of imposition, the RBI issued more PRs between December 2024 and January 2025 announcing the lifting of business restrictions on all four NBFCs (Dec-Jan PRs).
The Dec-Jan PRs provided a common reason for lifting the restrictions on four NBFCs (RBI PR, 2025):
Case 2:...Now, having satisfied itself based on company's submissions, and in view of adoption of revamped processes, systems, and the company's commitment to ensure adherence to the Regulatory Guidelines on an ongoing basis, especially for ensuring fairness in the loan pricing, the Reserve Bank has decided to lift the afore-mentioned restrictions placed on... with immediate effect.
The press release dated 29 May 2024 (May PR) sanctioned two entities belonging to the Edelweiss group: ECL Finance Limited (ECL) and Edelweiss Asset Reconstruction Company Limited (EARCL). ECL was prohibited from undertaking any structured transactions in respect of its wholesale exposures. EARCL was directed to cease and desist from acquisition of financial assets (RBI, PR 2024).
These sanctions were lifted through a PR dated 17 December 2024 (December PR). Similar language as used in Case 1 was used (RBI PR, 2024B):
...Now, having satisfied itself based on submissions and remedial measures put in place by these companies to address the concerns of RBI and their commitment to ensure adherence to the Regulatory Guidelines at all times and on an ongoing basis, the Reserve Bank has decided to lift the afore-mentioned restrictions placed on...with immediate effect.
Comparing the disclosures
We now compare the disclosures relating to the imposition and revocation of sanctions by the RBI in the two cases. The objective is to identify any consistent trends and point out inconsistent disclosure practices.
Imposition of sanctions
In Case 1, wherein four unrelated NBFCs were sanctioned through a single PR and for similar violations, it is difficult to identify specific non-compliances by each of the sanctioned NBFCs. It is also not clear if all the NBFCs were equally violating all the norms mentioned in the October PR, or to different degrees. Concerns have been raised regarding the proportionality of RBI actions, particularly since some NBFCs were in the business for several years, while others were relatively new. Thus, one wonders if it was desirable to subject all NBFCs to the same sanction, and the possible unintended consequences of such business restrictions on entities doing business with, including customers of, such NBFCs (Sane, 2024).
Similar to Case 1, sanctions were imposed on more than one entity in Case 2. However, a key difference is that the four NBFCs sanctioned in Case 1 were unrelated to each other while the two entities sanctioned in Case 2 were Edelweiss group companies (EGCs).
While the violations by two EGCs in a consolidated manner, the May PR also highlighted the violations at an individual level. While PRs in both cases lack critical details about the violations, the regulator's inconsistent approach to the extent to which it intends to disclose violations by regulated entities is evident from the review and comparison of these PRs.
Rationale for imposition of sanctions
On the rationale for the imposition of sanctions, the October PR related to Case 1 does not provide any information other than the violations. The May PR related to Case 2 highlights efforts made by the RBI to engage with relevant entities to rectify the deficiencies and take meaningful remedial action, which remained unsatisfactory. While limited, such additional information helps in better understanding the rationale for business restrictions imposed by the regulator, the efforts it took to work with regulated entities to come up with a solution, and whether any alternatives were considered. No such information is present in the October PR related to Case 1, highlighting another component of inconsistencies between disclosures by the RBI relating to violations committed by regulated entities and sanctions imposed by it.
The disclosures imposing and revoking sanctions on regulated entities do not seem to be consistent. While the former typically lays down key violations and broad remedial measures which the RBI will take into account for reviewing the violations, the latter seems to be devoid of any specific details regarding remedial measures taken by the sanctioned entities resulting in the lifting of business restrictions.
Such lack of information is particularly concerning when the time between imposition and lifting of sanctions is quite short, and when the regulator has itself highlighted the uncooperative nature of regulated entities and their tendency to resort to new ways to circumvent regulations, like in Case 2. For instance, for Navi NBFC in Case 1, the sanctions were lifted in less than one and a half months of imposition. What is unclear are the actions or course corrections the NBFCs took to get such a respite within a short duration of the imposition of restrictions.
Moreover, while imposing sanctions the RBI often highlights areas wherein remedial action is expected from the sanctioned entities. Such areas seem to have been ignored while revoking sanctions. For instance, in Case 1, the RBI specified that remedial actions were expected in pricing policies, risk management processes, customer service and grievance redress aspects. However, the Dec-Jan PRs specifically highlighted that NBFCs had taken actions to ensure fairness in loan pricing. No reference was made to other areas repeatedly identified by the regulator while imposing sanctions. In case 2, even thisinformation, about the key area related to which remedial action was taken by the sanctioned EGCs, was missing.
Despite being inconsistent in disclosing relevant information while imposing sanctions, and in disclosures during imposing and revoking sanctions, the RBI is quite consistent when disclosing the rationale (or the lack thereof) of revoking sanctions, even when the violations differ.
The language of December PR lifting business restrictions in Case 2 is significantly similar to the language of Dec-Jan PRs lifting business restrictions in Case 1. The regulator ighlighted that it is satisfied by the remedial measures taken by the sanctioned entities. There is no information about the nature of remedial measures, whether they were taken in areas wherein deficiencies were identified, and mechanisms through which RBI satisfied itself, among other things.
The following table summarily compares the disclosures in both cases and shows the inconsistency in the PRs.
| S. No | Indicator | Case 1 | Case 2 |
|---|---|---|---|
| 1 | Identification of sanctioned entities | Yes | Yes |
| 2 | Common non-compliances by all entities | Yes | Yes |
| 3 | Specific violations by each violator | No | Yes |
| 4 | Common sanctions on all entities | Yes | No |
| 5 | Specific sanctions on each entity | No | Yes |
| 6 | Additional rationale for sanctions | No | Yes |
| 7 | Conditions for review of sanctions | Yes | Yes |
| 8 | Specific remedial measures expected from sanctioned entities | Yes | Yes |
| 9 | Broad rationale for the lifting of sanctions | Yes | Yes |
| 10 | Specific remedial measures taken by sanctioned entities | Yes | No |
| 11 | Consistency between remedial action expected and taken | No | No |
Transparency by other central banks
The Federal Reserve (Fed), the central bank of the United States, takes enforcement actions against its regulated entities. Like RBI, the Fed issues PRs announcing enforcement actions and their terminations (FED PR). In addition, the Fed releases consent orders on its website (FED PR, 2024). Interestingly, unlike the RBI, one Fed PR covers more than one entity only when such entities are related parties (FED PR, 2025).
On its website, the Fed arranges disclosures related to sanctions in a reader-friendly manner. The sanctions are listed under heads like effective date, termination date, the party subject to action (banking organisation or individual), and enforcement action, along with a link to the PR (FED ENF):
The Fed disclosures typically fix responsibility on the board of directors of the regulated entities to comply with the sanctions, and to take corrective actions (FED AGR, 2023):
Bancorp's board of directors shall take appropriate steps to fully utilise Bancorp's financial and managerial resources including, but not limited to, taking steps to ensure that the Bank complies with this Agreement...
Each of the corrective actions is then listed out, along with the period within which such action needs to be completed:
Within 60 days of the effective date of this Agreement, the board of directors of the Bank shall submit a written plan to the Supervisors to strengthen board oversight of the management and operations of the Bank. The plan shall include the following four items...
The disclosure then discusses the sanction:
Effective immediately, Bancorp shall not, directly or indirectly, declare or pay dividends, engage in share repurchases, or make any other capital distribution in respect of common shares,... without the prior written approval of the Reserve Bank and the Director of Supervision and Regulation of the Board of Governors...
A separate disclosure terminating the sanction is issued by the Fed (FED PR 2025A).
Like the Fed and the RBI, the European Central Bank (ECB) is the central bank of the European Union countries which have adopted the euro. It has been empowered to impose sanctions on its regulated entities, in case of non-compliance. It also issues PRs disclosing sanctions it imposed, similar to other regulators. Along with the PRs, the ECB issues a publication with some additional details regarding the violation and rationale for the sanction.
Similar to the Fed but unlike the RBI, the ECB neatly discloses its sanctions under headings like date of ECB decision, supervised entity, amount, area of infringement, further information, and decision status, as indicated below (ECB SAN):
Arrangements of sanctions in this reader-friendly manner fosters ease of search and understanding for regulated entities and interested stakeholders.
Effective immediately, Bancorp shall not, directly or indirectly, declare or pay dividends, engage in share repurchases, or make any other capital distribution in respect of common shares,... without the prior written approval of the Reserve Bank and the Director of Supervision and Regulation of the Board of Governors...
The ECB PRs identify the non-compliance and its period. For instance, in its PR dated 20 December 2024 related to BNP Paribas, the ECB states (ECB PR, 2024):
Between 2014 and 2021, for 31 consecutive quarters, BNP Paribas Fortis SA/NV understated its risk-weighted assets connected to factoring exposures of its subsidiary in Belgium.
The ECB PRs also fix responsibility and accountability on regulated entities by indicating if the non-compliance was willful or not:
The bank knowingly reported wrongly calculated figures to the competent authorities, thereby preventing them from having a comprehensive view of its risk profile.
The ECB PRs then go on to explain the significance of the non-compliance and adverse consequences of the violation:
As a result of underestimating its risk-weighted assets, BNP Paribas Fortis SA/NV did not calculate its capital requirements properly and reported higher capital ratios than it should have.
The ECB PR also discloses the rationale for the sanction:
When setting a pecuniary penalty, the ECB applies its dedicated public guide (ECB, 2021). In this case, the ECB has classified the breach as 'severe'.
Along with the PR, the ECB issues a publication with some additional details regarding the violation and rationale for sanction, such as (ECB, 2024):
The ECB assessed the impact of the breach as 'medium' based on the effect that the breach had on the prudential situation of the entity and its effective supervision. This was determined on the basis of the importance of reporting obligations for ongoing supervision, the duration of the breach and the extent to which the reported figures differed from those calculated using less sophisticated regulatory approaches, which prevented the ECB from obtaining a comprehensive view of the risk profile and the prudential situation of the entity in the relevant period...
Such disclosures can provide appropriate guidance to the regulated entities in planning their operations. Also, entities doing business with, and customers of, sanctioned entities are likely to find themselves in a better position to determine whether or not to continue engaging with sanctioned entities.
Like the Fed, it also appears that the ECB does not impose multiple sanctions through a single PR unless the sanctioned entities are related parties.
Conclusion
From a review of sanction-related PRs and disclosures by the RBI, the Fed, and the ECB, the RBI may consider the following suggestions to improve its practices:
- Not to issue a single PR disclosing sanctions on multiple entities, unless those entities are related parties or acting in concert.
- Identify violations by the sanctioned entities.
- Disclose corrective actions and the period within which such actions are required to be taken.
- Highlight the sanctions and rationale for the same. It appears that the RBI has an enforcement policy which lists factors that it needs to consider while imposing sanctions (RBI AR, 2019). The RBI may consider disclosing relevant factors which it took into account while imposing specific sanctions.
- Highlight the corrective actions taken by the sanctioned entities while revoking sanctions.
In addition, the RBI can get inspiration from the ECB and the Fed to arrange its sanctions-related PRs in a searchable and user-friendly manner. Further, the Parliament needs to require the RBI to not only give "speaking orders", but also put its written orders in the public domain. This becomes essential as the RBI is using PRs for a very weighty function, that of legal transparency. A commensurate serious process design for ensuring that relevant information is consistently disclosed in public domain, is therefore necessary.
References
Aggarwal et al, 2024A: Natasha Aggarwal, Bhavin Patel, and Renuka Sane, 2024, The exercise of discretionary powers: The case of debarment and restraint from capital markets, The Leap Blog.
Aggarwal et al, 2024: Natasha Aggarwal & Bhavin Patel, 2024, Bypassing expert tribunals through writs: Judicial overreach in review of the Telangana State Electricity Regulatory Commission's orders, Working Papers 7, Trustbridge Rule of Law Foundation.
ECB PR, 2024: European Central Bank Press Release, ECB sanctions BNP Paribas Fortis SA/NV for misreporting capital requirements, 20 December 2024.
ECB SAN: European Central Bank, Sanctions imposed by the ECB.
ECB, 2021: European Central Bank, Guide to the method of setting administrative pecuniary penalties pursuant to Article 18(1) and (7) of Council Regulation (EU) No 1024/2013, March 2021.
ECB, 2024: European Central Bank, Imposition of an administrative penalty on BNP Paribas Fortis SA/NV, December 2024.
FCO, ADJ: The decisions of Financial Conduct Authority of UK are appealable at Upper Tribunal (Tax and Chancery Chamber). Decisions of the Upper Tribunal are available here.
FED AGR, 2023: Written Agreement by and among Marblehead Bancorp Marblehead, Ohio Marblehead Bank Marblehead, Ohio Division of Financial Institutions Columbus, and Federal Reserve Bank of Cleveland Cleveland, Ohio, October 2023.
FED ENF: Board of Governors of the Federal Reserve System, Enforcement Actions.
FED PR, 2024: Board of Governors of the Federal Reserve System, Order to Cease and Desist Issued Upon Consent in the matter of First Murphysboro Corp, 25 November 2024.
FED PR, 2025: Board of Governors of the Federal Reserve System Press Release, Federal Reserve Board announces termination of enforcement action with Marblehead Bancorp and Marblehead Bank, 23 January 2025, wherein the former is owner and controller of the latter.
FED PR, 2025A: Federal Reserve Board announces termination of enforcement action with Marblehead Bancorp and Marblehead Bank, 23 January 2025.
FED PR: Board of Governors of the Federal Reserve System, Press Releases.
IRDAI, ENF: IRDAI enforcement actions are available here.
RBI AR, 2o19: RBI Annual Report 2018-19, RBI Enforcement Policy and Framework is available in Box VI.6 here.
RBI PR, 2024: RBI Press Release, Supervisory Action against ECL Finance Limited and Edelweiss Asset Reconstruction Company Limited based on material supervisory concerns, 29 May 2024.
RBI PR, 2024A: RBI Press Release. Action against select NBFCs including NBFCs-MFIs, 17 October 2024, The sanctioned entities were Asirvad Micro Finance Limited, Arohan Financial Services Limited, DMI Finance Private Limited, and Navi Finserv Limited.
RBI PR, 2024B: RBI Press Release, Removal of supervisory restrictions: ECL Finance Limited and Edelweiss Asset Reconstruction Company Limited, 17 December 2024.
RBI PR, 2025: RBI Press Release, Removal of supervisory restrictions: (i) Asirvad Micro Finance Limited, Chennai and (ii) DMI Finance Private Limited, New Delhi, 8 January 2025.
RBI, APL: Appeals against different RBI enforcement actions are maintainable before Appellate Authorities mentioned in the relevant regulatory instruments. For instance, as per the RBI Master Circular on Scheme of Penalties, appeal against penalties imposed by RBI is maintainable with the Regional Director/Chief General Manager/Officer-in-Charge of the Regional Office concerned. See here. Similarly, under the PSS Act, the Officer-in-Charge of Department of Payment and Settlement Systems at the Central Office of the Reserve Bank of India is the Appellate Authority. See here. Orders of such appellate authorities are not available in public domain.
RBI, REG: The RBI regulates different entities, including banks, non-bank finance companies (NBFCs), payment service providers, asset reconstruction companies, cooperative banks, and housing finance companies. It derives its powers from the Banking Regulation Act, 1949; the RBI Act, 1934; the Payment and Settlement Systems Act, 2007; and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, among others.
Sane et al, 2021: Sane, Renuka and Trishee Goyal, Towards better enforcement by regulatory agencies, 2021.
Sane et al, 2022: Sane, Renuka and Vivek, S., Reconsidering SEBI Disgorgement (May 31, 2022).
Sane, 2024: Sane, Renuka (2024), Order Restricting 4 NBFC operations lacks clarity. It won't help customers, companies, The Print, 23 October 2024.
SEBI, ADJ: SEBI adjudicatory orders are available here.
The authors are researchers at the TrustBridge Rule of Law Foundation.
