Direct Action Flashcards
What is meant by the term “direct action” in the context of banking regulation?
Direct action refers to the Reserve Bank of India’s (RBI) ability to take punitive measures against banks and non-banking financial institutions that violate its rules and directives. This is done when negotiation or persuasion tactics have failed.
List at least three key pieces of legislation that give the RBI its enforcement powers.
RBI Act (Reserve Bank of India Act), Banking Regulation Act, Payment and Settlement Systems Act, Prevention of Money Laundering Act (PMLA), Foreign Exchange Management Act (FEMA)
Explain the concept of a “clawback provision.”
A clawback provision is a rule that allows banks to recover previously paid salaries and bonuses from CEOs and top executives if they are found to have engaged in misconduct or fraudulent activity, even if they have subsequently left the bank.
Why did the RBI introduce the mandate for clawback provisions in 2019?
The RBI introduced clawback provisions to hold top executives accountable for misconduct and to deter fraudulent behavior within India’s banking system.
