📄 Source: Reserve Bank of India · Press Release prid 63039
Quick answerRBI imposed a ₹1 lakh penalty on The Chikmagalur District Co-operative Central Bank Ltd. for sanctioning loans to its directors, violating Section 20 read with Section 56 of the Banking Regulation Act, 1949.
What changed
RBI, via an order dated June 25, 2026, imposed a ₹1 lakh penalty on The Chikmagalur District Co-operative Central Bank Ltd. for sanctioning director-related loans, contravening Section 20 read with Section 56 of the Banking Regulation Act, 1949. The action followed a NABARD inspection with reference to the bank's financial position as on March 31, 2025.
What it means for you
This penalty underscores RBI's zero-tolerance for self-dealing by co-operative banks. Lenders must ensure strict compliance with restrictions on loans to directors to avoid similar fines and reputational risk.
The rule, in the simplest words
Co-operative banks must not give loans to their directors.
Banks must review their loan portfolios to ensure they are not giving loans to directors.
Banks must follow rules to prevent giving loans to directors and must document their compliance.
How it plays out — a real example
A gold-loan officer in Indore, working at a co-operative bank, must ensure that they do not give loans to the bank's directors. If they find any director-related loans, they must review the loans and either recover the amount or regularize them. They must also document their compliance with the bank's internal audit checks to prevent similar issues in the future.
What you must do
Review all loan portfolios for any director-related advances and ensure immediate recovery or regularization.
Strengthen internal audit checks to flag and prevent director-related lending.
Train board and credit staff on Section 20 of the BR Act restrictions for co-operative banks.
Document compliance with NABARD inspection findings to preempt regulatory action.
Who it affects
The Chikmagalur District Co-operative Central Bank Ltd., All co-operative banks in India, NABARD-supervised lenders
What specific violation led to this penalty?
The bank sanctioned loans to its directors, which contravenes Section 20 read with Section 56 of the Banking Regulation Act, 1949.
Does this penalty affect the bank's customers?
No, RBI clarified the action is based on statutory compliance deficiencies and does not invalidate any customer transactions.
What is the penalty amount and when was it imposed?
The penalty is ₹1 lakh, imposed by RBI on June 25, 2026.
Test yourself
Quick self-check built only from the facts already on this page — tap a question to reveal the answer.
Q1. In one line, what does this circular do?
RBI imposed a ₹1 lakh penalty on The Chikmagalur District Co-operative Central Bank Ltd. for sanctioning loans to its directors, violating Section 20 read with Section 56 of the Banking Regulation Act, 1949.
Q2. Who does this circular apply to?
The Chikmagalur District Co-operative Central Bank Ltd., All co-operative banks in India, NABARD-supervised lenders
Q3. What is the first thing you should do about it?
Review all loan portfolios for any director-related advances and ensure immediate recovery or regularization.
Review all loan portfolios for any director-related advances and ensure immediate recovery or regularization.
Strengthen internal audit checks to flag and prevent director-related lending.
Train board and credit staff on Section 20 of the BR Act restrictions for co-operative banks.
Document compliance with NABARD inspection findings to preempt regulatory action.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (The Chikmagalur District Co-operative Central Bank Ltd., All co-operative banks in India, NABARD-supervised lenders), your first concrete step on “RBI fines Chikmagalur Co-op Bank for director-related loans” is: “Review all loan portfolios for any director-related advances and ensure immediate recovery or regularization.”.
Circular: https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=63039 -- RBI fines Chikmagalur Co-op Bank for director-related loans
Issued: 29 Jun 2026, 17:38 IST
Action required: Review all loan portfolios for any director-related advances and ensure immediate recovery or regularization.
Action required: Strengthen internal audit checks to flag and prevent director-related lending.
Action required: Train board and credit staff on Section 20 of the BR Act restrictions for co-operative banks.
Action required: Document compliance with NABARD inspection findings to preempt regulatory action.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
AI-drafted · AI fact-check pending · under the editorial review of our expert review panel · decoded & published by BankPulse · 29 Jun 2026, 17:38 IST
Official RBI source: https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=63039 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert review panel. Independent platform, not affiliated with the Reserve Bank of India; never reproduces RBI text verbatim.
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