RBI Turns Its Glare On Deposits-For-Incentives Schemes At Banks

The Reserve Bank of India is stepping up its action against domestic lenders, who are deploying questionable methods to incentivise employees and garner more business.

On Sept. 10, the central bank levied a Rs 1-crore penalty on HDFC Bank for multiple violations of norms. One of these violations was linked to offering incentives to depositors.

According to the RBI's statement, the bank gave gifts valued at more than Rs 250 to the depositors at the time of accepting certain deposits. These gifts were in the form of paying one year's insurance premium for complimentary life insurance cover.

While this instance was specifically aimed at depositors, in another case a bank gave incentives to its own employees.

Earlier this year, the regulator's senior supervisory manager for Axis Bank raised serious governance concerns at the private lender's Bharat Enterprises business. This business is focused on retail and wholesale loans across rural India. An RBI SSM is a senior officer dedicated to specific large financial institutions for closer supervisory checks.

According to documents reviewed by NDTV Profit, Axis Bank conducted an incentive scheme titled 'Achiever's Club' in Oct. 2024, aimed at rewarding its employees for higher business growth in the July-September and October-December quarters last year.

In their observations, the RBI's supervisory official said that the bank conducted incentive programmes where employees were rewarded with international and domestic trips for achieving certain numbers. NDTV Profit has reviewed portions of the RBI official's comments made to the bank's management.

The incentives were given to top level employees under the executive vice president level, who achieved highest numbers for assets and liabilities in the Bharat Enterprises business, according to excerpts that NDTV Profit has reviewed. According to details available, till last month, employees were going on tours under the scheme.

In fiscal 2024, the overall disbursements sourced by Bharat Banking were up 30% year-on-year, rural advances were up 30% YoY and deposits from Bharat branches were up 12%, thereby aiding the priority sector lending and profitability metrics, Axis Bank noted in its latest annual report.

As of June 30, the bank's outstanding deposits were at Rs 10.24 lakh crore, up 14% YoY. According to disclosures made in the investor presentation for the quarter, 9% deposit growth came from Bharat Banking.

Axis Bank did not respond to queries mailed on Thursday.

While banks are allowed to provide incentives to certain employees pushing specific products, these should not apply to core products like loans and deposits, according to the RBI's rules.

In March 2016, the central bank had issued guidelines for banks to follow while pricing deposits. The guidelines specify that banks shall not offer prizes, lotteries, free trips (in India and/or abroad), or any other initiatives having elements of chance for mobilizing deposits.

The only exceptions here are commissions paid to certain agents, direct selling or direct marketing agents and fee paid to business correspondents.

According to a person aware of the matter, the RBI regularly checks for such incentive schemes at banks and highlights it to senior management. Through the supervisory framework, the regulator picks issues at individual banks and deals with them bilaterally.

While such issues are typically resolved during this process, the regulator may choose to levy specific penalties or other enforcement measures for such violations. If there are systemic issues that the regulator notices, it will look at tightening norms, the person quoted above said.