**AIBEA Letter No. 125 (3 July 2026): Call for National Accountability Policy on Regulatory Penalties in Public Sector Banks**
In a significant communication to the newly appointed Secretary of the Department of Financial Services, the All India Bank Employees’ Association (AIBEA) has urged the Government of India to establish a comprehensive National Accountability Policy for instances of regulatory non-compliance by banks. The letter highlights how repeated monetary penalties imposed by the Reserve Bank of India are ultimately borne by public resources rather than the individuals responsible.
**Background and Core Issue**
The RBI regularly levies penalties on banks for violations related to KYC/AML, customer protection, cyber security, fraud reporting, exposure norms, and other regulatory requirements. While these penalties do not affect the validity of customer transactions, AIBEA points out that the financial burden falls on the bank’s Profit & Loss account. In public sector banks, this effectively means the cost is socialised among the government, shareholders, depositors, and taxpayers.
The association argues that this creates a governance deficit where individual accountability is absent. Officials responsible for systemic or operational failures escape personal consequences while public money covers the penalties. AIBEA emphasizes that
responsibility and accountability must go hand in hand, in line with principles enshrined in the Companies Act, governance guidelines for PSUs, and RBI’s own corporate governance framework.
**Key Demands and Proposed Policy Framework**
AIBEA has called for a uniform National Policy on Accountability applicable to all Public Sector Banks. The policy should include:
– Mandatory identification of officials responsible for regulatory violations leading to penalties.
– Constitution of an independent Internal Committee for time-bound enquiries. – Fixation of responsibility following principles of natural justice and initiation of disciplinary action under applicable conduct regulations.
– Accountability extending to top management in cases of systemic failure. – Mandatory reporting to the Board and annual disclosure in the bank’s Annual Report detailing penalties, violations, officials held accountable, and actions taken.
– Strengthening of internal compliance systems, staffing, training, and monitoring tools.
The letter notes the contrast with disciplinary proceedings frequently initiated against junior staff for minor lapses, arguing it would be unjust for major compliance failures costing lakhs or crores to be absorbed without fixing responsibility at appropriate levels.
**Significance**
AIBEA has offered to participate in any consultation process. The communication stresses that Public Sector Banks are custodians of public savings and instruments of national development. A transparent accountability mechanism would strengthen compliance culture, protect public funds, restore public confidence, and uphold the principle that no individual is above accountability.
The full text of the letter is reproduced below.
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**Full Text of AIBEA Letter No. 125 dated 3rd July 2026**
ALL INDIA BANK EMPLOYEES’ ASSOCIATION
Central Office: “PRABHAT NIVAS” Regn. No.2037 Singapore Plaza, 164, Linghi Chetty Street, Chennai-600001
Phone: 2535 1522 Web: www.aibea.in e mail ~ chv.aibea@gmail.com & aibeahq@gmail.com M 98400 89920
AIBEA/GS/2026/125
3rd July, 2026
Shri. Sanjay Lohiya
The Secretary
Department of Financial Services
Ministry of Finance, Government of India
Jeevan Deep Building
Parliament Street
New Delhi – 110001
Subject: Formulation of a National Accountability Policy for Regulatory Non-Compliance and Recovery of Monetary Penalties from Officials Responsible for Regulatory Violations
Dear sir,
We from the All India Bank Employees’ Association (AIBEA),
representing lakhs of employees working in the banking industry across the country, welcome you and convey our greetings and good wishes on your recent assuming the charge as Secretary of the Dept. of Financial Services.
We wish to draw the attention of the Government of India to an important issue concerning governance, regulatory compliance and protection of public money.
The Reserve Bank of India has, from time to time, been imposing monetary penalties on banks for violations of and deviations from various statutory provisions and regulatory directions relating to KYC/AML norms, customer protection, cyber security, fraud reporting, outsourcing, exposure norms, prudential regulations, maintenance of statutory records and several other areas of banking operations.
These penalties are imposed on the Banks under the powers conferred upon the Reserve Bank of India under the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934, and other applicable statutes.
Recently also, the Reserve Bank has imposed monetary penalties on several banks for deficiencies in regulatory compliance. It has become a regular and recurring feature. These actions once again highlight the need for a comprehensive accountability framework.
While the RBI has consistently clarified that such penalties relate to deficiencies in regulatory compliance and do not invalidate the transactions undertaken by customers, an important issue continues to remain unattended.
The monetary penalties are paid out of the resources of the concerned bank from the profit and Loss account. In the case of Public Sector Banks, these resources belong substantially to the Government of India, public shareholders, depositors and ultimately the taxpayers of the country.
Consequently, the financial burden of regulatory violations committed by some officials is transferred to the institution and its
stakeholders instead of the individuals who were actually responsible for such failures.
This situation creates a serious governance deficit.
The present system virtually socialises the cost of regulatory failures while individual accountability remains either absent or invisible. Such a framework neither acts as an effective deterrent nor promotes a culture of responsible compliance.
It is an accepted principle of public administration that
responsibility and accountability must always go together. Wherever responsibility is fixed, accountability must necessarily follow.
The Companies Act, 2013 casts fiduciary responsibilities upon the Board of Directors and Key Managerial Personnel. The Government of India has also issued detailed governance guidelines for Public Sector Enterprises emphasising transparency, accountability and responsible management of public assets.
Similarly, the Reserve Bank’s Corporate Governance framework places responsibility upon the Board and Senior Management for ensuring effective compliance systems.
Despite these well-established principles, to our knowledge, there is presently no uniform policy requiring fixation of accountability where banks suffer monetary penalties due to regulatory non-compliance.
We, therefore, urge upon the Government/Finance Ministry to formulate a National Policy on Accountability for Regulatory Non-Compliance applicable to all Public Sector Banks.
The policy should, inter alia, provide for:
1. Mandatory identification of the officials responsible for every instance of regulatory non-compliance resulting in monetary penalty to the Bank.
2. Constitution of an independent Internal Committee to conduct a timebound enquiry into every regulatory penalty imposed by RBI or any other statutory regulator.
3. Fixation of responsibility after following due process and the principles of natural justice.
4. Since such recoveries of penalty from the Bank for these
violations, deviations and non-compliances are the result of negligence, omission, misconduct or deliberate disregard of regulatory instructions by some official, the same has to be taken cognizance of under the Disciplinary Rules and Conduct Regulations.
5. Accountability not only of the operating officials but also of the top management wherever systemic failures are established.
6. Mandatory reporting to the Board of Directors regarding every regulatory penalty along with the action taken report.
7. Annual disclosure in the Bank’s Annual Report regarding:
– Regulatory penalties imposed;
– Nature of violations;
– Officials held accountable;
– Disciplinary action initiated;
– Amount recovered from responsible officials, wherever applicable.
8. Strengthening of internal compliance architecture by ensuring adequate staffing, specialised compliance departments, continuous training and modern compliance monitoring systems.
We also submit that employees and officers working at branches are frequently subjected to disciplinary proceedings for relatively minor procedural lapses. Therefore, it would be wholly unjust if major regulatory failures and non-compliances resulting in penalties running into lakhs or crores of rupees are absorbed by the institution without identifying and fixing responsibility upon those accountable.
Public Sector Banks are not ordinary commercial enterprises. They are custodians of public savings and institutions created to serve national development. Every rupee paid as regulatory penalty diminishes public resources and ultimately affects the interests of depositors, shareholders and the Government itself.
A transparent accountability framework would improve governance standards, strengthen regulatory compliance, protect public money, enhance public confidence in the banking system and reinforce the principle that no individual, irrespective of position, is above accountability.
We, therefore, request the special attention of your office for framing a comprehensive policy on accountability for regulatory non-compliance by Banks.
AIBEA would be pleased to participate in any consultation process and place its detailed suggestions before the Government.
We trust that this important matter, involving protection of public funds and strengthening of governance in Public Sector Banks, shall receive your urgent and positive consideration.
Thanking you,
Yours sincerely,
C.H. VENKATACHALAM
GENERAL SECRETARY
Copy to:
1. Dy. Governor, Reserve Bank of India
2. Chairman, Indian Banks’ Association
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