Contraventions of regulatory requirements

Contraventions of regulatory requirements – levying of penalty – September 06, 2004

By Registered Post

NHB(ND)/DRS/POL-No.04/2004-05
September 06, 2004.

All Registered Housing Finance Companies (HFCs)

Dear Sir,

Contravention of regulatory requirements by HFCs Guidelines for levying penalty.

As you are aware, the provisions of the National Housing Bank Act, 1987 and the Housing Finance Companies (NHB) Directions framed thereunder are to be strictly observed by the HFCs and their compliance ensured. It is, however, observed during the off-site surveillance and on site supervision, that some of the HFCs are not paying adequate attention to this mandatory compliance and continue to contravene the provisions of both National Housing Bank Act and Directions. Housing Finance Companies are advised to ensure compliance with these provisions and prevent recurrence of any contraventions.

In this context, attention of the HFCs is also invited to Section 52A of the Act ibid in accordance with which NHB is empowered to impose penalty on a housing finance company for any contravention of the Act or the Directions made thereunder. It has been decided by the Bank that these penal provisions for non-compliance shall become effective from October 1, 2004.

The penalty for such contraventions in respect of various regulatory norms is given in the Annexure. The guidelines for levying penalty shall be as under:

a) A show-cause notice will be issued by NHB to the company concerned clearly specifying the nature of contravention and the penalty payable by the company within the reasonable time period not exceeding twenty one days from the date of issue of letter and seeking reasons for non-compliance with the regulatory requirement.

b) Once a decision is taken by NHB to levy the penalty, a notice demanding penalty shall be issued to the Company concerned allowing time of thirty days for paying the penalty.

c) In the event of the company not furnishing a reply to the show cause notice issued, within five working days after the stipulated time, a notice demanding penalty shall be issued to the company by the NHB.

d) If the company fails to pay the penalty within the prescribed period stipulated in the demand notice, one more opportunity will be given by issuing reminder giving seven more days for the company to pay the penalty. In the event of failure of payment, the penalty will be levied on a direction made by a principal civil court having jurisdiction of the area where the Registered or the Head Office of the company is situated.

Please acknowledge receipt.

-Sd-

Assistant General Manager
Department of Regulation & Supervision

Encl:a/a

Annexure to Circular No. NHB(ND)/DRS/POL-No.04/2004-05
Dated September 6, 2004

PENALTY FOR CONTRAVENTION OF VARIOUS REGULATORY REQUIREMENTS

A. Provisions relating to the National Housing Bank Act 1987

(1) Nature of contravention to regulatory requirement	(2) Penalty	(3) Penalty under section
1. For shortfall in maintenance of liquid assets as a percentage to public deposits	Penalty as specific in the Act.	29B(4)
2. Not creating reserve fund in terms of section 29C of the Act	Penalty not exceeding rupees five thousands shall be levied.	52A (1) (a)
3. Appropriation of reserve fund and not reporting to NHB within the stipulated period.	Penalty not exceeding rupees two thousand, each time the lapse occurs, shall be levied.	52A (1) (a)
4. Appropriation of reserve fund for purposes not specified by NHB	Penalty of rupees five thousand for the first time offence shall be levied. For second and subsequent contraventions, a maximum fine of rupees five thousands shall be levied.	52A (1) (a)

Annexure to Circular No. NHB(ND)/DRS/POL-No.04/2004-05
Dated September 6, 2004

B. Provisions of HFC (NHB) Directions, 2001 relating to acceptance of public deposits

(1) Nature of contravention to regulatory requirement	(2) Penalty recommended under the policy	(3) Penalty proposed under section
5. Exceeding ceiling on public deposits	For first time contravention, penalty not exceeding rupees one lakh or twice the amount involved in such contravention whichever is more shall be levied. If not regularised within 30 days from the date on which notice demanding penalty is issued, the contravention shall be treated as continuing one and further penalty not exceeding rupees ten thousand for every day, after the first, during which the contravention continues shall be levied.For second and subsequent contraventions, the maximum penalty as prescribed in the Act, i.e., penalty not exceeding rupees five lakhs or twice the amount involved in such contravention whichever is more, shall levied and if the contravention is continuing, further penalty not exceeding rupees twenty-five thousand for every day, after the first, during which the contravention continues shall be levied. [If the excess deposit is due to down gradation of credit rating or the company becoming ineligible to accept/hold public deposits, no penalty is applicable as long as the company reduces the excess deposit in terms of the relevant provisions of the directions]	52A (1) (b)
6. Exceeding ceiling on total borrowings	For first time contravention, a penalty not exceeding rupees two thousand shall be levied and time up to ninety days from the date of issuing notice demanding penalty shall be allowed for regularising the contravention. If not regularised within such time a penalty not exceeding Rs 50/- shall be levied for every day till the overall borrowing is brought within the ceiling.For second and subsequent contraventions, a penalty not exceeding rupees five thousand shall be levied and time up to ninety days from the date of issuing notice demanding penalty may be allowed for regularising the contravention. If not regularised within such time a penalty not exceeding rupees one hundred shall be levied for every day till the overall borrowing is brought within the ceiling.	52A (1) (b)
7. Not reporting down gradation of credit rating below the minimum prescribed rating within 15 days	Penalty not exceeding rupees five thousand shall be levied every time the contravention takes place.	52A (1) (a)
8. Accepting public deposits for less than 1 year or more than 7 years	penalty not exceeding rupees five lakhs or twice the amount involved in such contravention, whichever is more; and where such contravention or default is a continuing one, further penalty not exceeding rupees twenty-five thousand for every day, after the first, during which the contravention or default continues	52A (1) (b)
9. Failure to specify complete information as specified in the directions in deposit application forms	Penalty not exceeding rupees two thousand shall be levied.	52A (1) (a)
10. Accepting deposits without introduction	A penalty not exceeding rupees five thousand shall be levied for each such deposit which has been accepted without introduction.	52A (1) (a)
11. Not maintaining deposit registers	Penalty not exceeding rupees five thousand shall be levied.	52A (1) (a)
12. Maintaining deposit register without furnishing all the information specified in the directions.	Penalty not exceeding rupees two thousand shall be levied.	52A (1) (a)
13. Keeping the consolidated deposit register for all the branches at a place other than the registered office without complying with the provisions of sub-paragraph (2) of paragraph 9 of the Directions.	Penalty not exceeding rupees five thousand shall be levied.	52A (1) (a)
14. Not including information specified in the directions in the Board’s Report	A penalty not exceeding rupees two thousand shall be levied.	52A (1) (a)
15. Exceeding the ceiling on interest rate	A penalty not exceeding rupees five thousand shall be levied	52A (1) (a)
16. Exceeding the ceiling on brokerage	A penalty not exceeding rupees five thousand shall be levied	52A (1) (a)
17. Contravening provisions relating to payment of interest on overdue deposit	A penalty not exceeding rupees five thousand shall be levied	52A (1) (a)
18. Contravention of provisions relating to premature withdrawal of deposits and loans against deposits	A penalty not exceeding rupees five thousand shall be levied	52A (1) (a)
19 Contravening provisions relating to renewal of deposit before maturity	A penalty not exceeding rupees five thousand shall be levied.	52A (1) (a)
20. Not entrusting securities to the designated scheduled commercial bank excluding regional rural bank or a cooperative bank	A penalty not exceeding rupees five thousand shall be levied	52A (1) (a)
21. Entrusting securities with other approved agencies without obtaining approval from NHB in writing	A penalty not exceeding rupees five thousand shall be levied	52A (1) (a)
22. Not filing SILA for soliciting deposits	Penalty not exceeding rupees five lakhs or twice the amount involved in such contravention where the amount is quantifiable, whichever is more; and where such contravention or default is a continuing one, further penalty not exceeding rupees twenty-five thousand for every day, after the first, during which the contravention or default continues shall be levied.	52A (1) (b)
23. Delayed filing of SILA.	A penalty not exceeding rupees five thousand shall be levied	52A (1) (a)
24. Not fully specifying information as provided for in the directions in the advertisement or SILA	Penalty not exceeding rupees five thousand shall be levied	52A (1) (a)
25. Accepting deposits after expiry of the validity period of SILA	Penalty not exceeding rupees one lakh or twice the amount involved in such contravention where the amount is quantifiable, whichever is more; and where such contravention or default is a continuing one, further penalty not exceeding rupees twenty-five thousand for every day, after the first, during which the contravention or default continues.	52A (1) (b)
26.Giving incomplete/wrong information in SILA or advertisement	Penalty not exceeding rupees five thousand shall be levied	52A (1) (a)
27. Not informing in writing the intention to open branch or office before opening	Penalty not exceeding rupees two thousand shall be levied	52A (1) (a)
28. Failing to inform opening a branch or office even after opening the same.	Penalty not exceeding rupees five thousand shall be levied.	52A (1) (a)
29. Closing branch/office without publishing such intention in news papers before 90 days of the proposed closure	Penalty not exceeding rupees five thousand shall be levied	52A (1) (a)
30. Closing branch/office without advising NHB such intention before 90 days of the proposed closure	Penalty not exceeding rupees five thousand shall be levied	52A (1) (a)

Annexure to Circular No. NHB(ND)/DRS/POL-No.04/2004-05
Dated September 6, 2004

C. Provisions of HFC (NHB) Directions, 2001 relating to prudential norms

(1) Nature of contravention to regulatory requirement	(2) Penalty recommended under the policy	(3) Proposed under section
31. Contravening income recognition norms	Penalty not exceeding rupees five thousand shall be levied for each such contravention.	52A (1) (a)
32. Contravening classification norm for investments	Penalty not exceeding rupees five thousand shall be levied for each such contravention.	52A (1) (a)
33. Contravening valuation norm for investments	Penalty not exceeding rupees five thousand shall be levied for each such contravention.	52A (1) (a)
34. Contravening asset classification norm	Penalty not exceeding rupees five thousand shall be levied for each such contravention.	52A (1) (a)
35. Wrong classification of rescheduled loans	Penalty not exceeding rupees five thousand shall be levied for each such contravention.	52A (1) (a)
36. Shortfall in provisioning	Penalty not exceeding rupees five thousand shall be levied for each such contravention.	52A (1) (a)
37. Contravening norms relating to disclosure in balance sheets	Penalty not exceeding rupees five thousand shall be levied for each such contravention	52A (1) (a)
38. Assigning wrong risk weights to assets while computing CAR resulting in inflated CAR	Penalty not exceeding rupees five thousand shall be levied for each such contravention.	52A (1) (a)
39. Exceeding ceiling on investment in real estates other than for own use	Penalty not exceeding rupees five thousand shall be levied.	52A (1) (a)
40. Exceeding exposure to capital market	Penalty not exceeding rupees five thousand shall be levied.	52A (1) (a)
41. Contravening credit concentration norm	Penalty not exceeding rupees five thousand shall be levied.	52A (1) (a)
42. Lending against own shares	Penalty not exceeding rupees five thousand shall be levied.	52A (1) (a)
43. Not constituting Audit Committee	Penalty not exceeding rupees five thousand shall be levied.	52A (1) (a)
44. Constituting Audit Committee contravening provisions of the directions relating to Audit Committee.	Penalty not exceeding rupees two thousand shall be levied.	52A (1) (a)
45. Not furnishing audited accounts within due dates (If prior permission has been obtained from ROC for extending the time frame as per the Companies Act, 1956, no penalty is to be levied since the due date also gets shifted automatically)	Penalty not exceeding rupees five thousand shall be levied	52A (1) (a)
46. Not furnishing Director’s Report along with audited accounts	Penalty not exceeding rupees five thousand shall be levied.	52A (1) (a)
47. Deposit accepting company not furnishing Auditor’s certificate in terms of paragraph 38 of the directions	Penalty not exceeding rupees two thousand shall be levied if the certificate is not made available within the due date, i.e., 30th September of every year.	52A (1) (a)
48. HFC not furnishing to NHB the auditor’s report containing matters specified in paragraph 30 & 31 of the directions in the auditor’s report	Penalty not exceeding rupees five thousand shall be levied.	52A (1) (a)
49. Non-submission of returns	If returns due are not furnished by the time the next such return is due, it shall be treated as non-submission of the return. Penalty not exceeding rupees five thousand shall be levied.	52A (1) (a)
50. Delayed submission of returns	Penalty not exceeding rupees one thousand shall be levied if returns are not submitted within 15 days of the due date specified in the return each time.	52A (1) (a)
51. Submission of incomplete returns or submission of returns in out dated formats	Penalty not exceeding rupees one thousand shall be levied for the first offence which may be increased to a maximum of rupees two thousand for subsequent lapses.	52A (1) (a)
52. Not furnishing information regarding change of address, change of directors, specimen signature of directors & principal officers etc., in terms paragraph 39(2) of the directions	Penalty not exceeding rupees one thousand shall be levied for the first lapse which may be increased to a maximum of rupees five thousand for subsequent each lapses.	52A (1) (a)