Skip to main content

Framework for imposing monetary penalty and compounding of offences under the Payment and Settlement Systems Act, 2007

Reserve Bank of India (RBI) has released the framework for imposing monetary penalty and compounding of offences under the Payment and Settlement Systems Act, 2007.

What are the contraventions as per the Payment and Settlement Systems Act, 2007 (PSS Act)?

As per Section 26 of the Payment and Settlement Systems Act, 2007 (PSS Act), the contraventions are as under –

  • Operation of a payment system without authorisation or failure to comply with the terms and conditions subject to which authorisation was issued [section 26(1)].
  • Wilfully makes a statement which is false in any material particular or wilfully omits to make a material statement in any application for authorisation or return or other document or information [section 26(2)].
  • Failure to produce any statement, information, returns or documents [section 26(3)].
  • Disclosure of information which is prohibited [section 26(4)].
  • Non-compliance of direction issued by RBI or failure to pay the penalty imposed by RBI within the stipulated period [section 26(5)].
  • Contravention of any provision of the PSS Act or if any default is made in complying with any other requirements of the PSS Act, or any regulation, order or direction made or given or condition imposed thereunder [section 26(6)].

How is the materiality of a contravention determined?

Only material contraventions will be taken up for enforcement action in the form of imposition of monetary penalty or compounding of offences. The materiality of a contravention would be determined based on various factors including –

  • Severity of contravention in terms of degree of breach of norms / limits (isolated, localised, extensive, widespread).
  • Period and frequency of a similar contravention during the past 5 years.
  • Seriousness of the contravention, percentage of amount involved in the contravention vis-à-vis total value of transactions handled by the contravener during the period under consideration.
  • Amount involved in the contravention.
  • Submission of wrong / false / incomplete compliance.

Who is the designated authority for imposing monetary penalty and compounding of contraventions?

The designated authority for imposing monetary penalty and compounding of contraventions shall be –

  • Committee comprising 3 Executive Directors in respect of cases handled by Central Office of Enforcement Department.
  • Committee comprising Regional Director and 2 senior officers at the Regional Office of Enforcement Department.

What is the procedure for imposing monetary penalty?

  • A Show Cause Notice (SCN) may be issued advising the contravener to show cause as to why the amount specified in the notice should not be imposed as penalty. In cases where a contravener has already been issued with more than one cautionary / warning / displeasure letter for a particular type of contravention by RBI on earlier occasions of contraventions during the last 5 years, an SCN shall be issued on the subsequent occasions.
  • The contravener shall be provided with a reasonable opportunity of being heard, if requested by the contravener in reply to the SCN.
  • The Designated Authority shall pass a Speaking Order based on the material on record, the reply and supporting documents presented by the contravener and also the submissions made in this connection during the Personal Hearing.

What shall be the quantum of penalties?

  • The amount of monetary penalty for a contravention shall not exceed ₹10 lakh or twice the amount involved in such contravention, where such amount is quantifiable, whichever is more [Section 30]. 
  • Where such contravention or default is a continuing one, a further penalty up to ₹25,000/- for every day after the first during which the contravention or default continues, can also be imposed.

The amount of penalty may be based on the principles of proportionality, intent and mitigating factors, if any. 

Which contraventions can be compounded?

Section 31 of the PSS Act empowers an officer of RBI duly authorised by it in this behalf to compound contraventions, not being an offence punishable with imprisonment only or with imprisonment and fine. Accordingly, contraventions mentioned in sub-sections (1), (3), (4), (5) and (6) of section 26 of the PSS Act are covered for the purpose of compounding.

What is the procedure for compounding?

  • An applicant wishing to seek compounding of eligible contraventions, shall submit an application, along with the supporting documents, to the Enforcement Department, RBI, Central Office. The applicant shall also give an undertaking that they are not under any enquiry / investigation / adjudication by any Law Enforcement Agency, such as Directorate of Enforcement, Directorate of Revenue Intelligence, Central Bureau of Investigation, etc. 
  • The contravener shall be provided with a reasonable opportunity of being heard by the respective Designated Authority.
  • The Designated Authority shall pass an order as expeditiously as possible, but within 6 months from the date of receipt of the complete compounding application.
  • Where a contravention has been compounded by RBI, no proceeding shall be initiated / continued against the person committing such contravention, in respect of the contravention so compounded.

What shall be the compounding amount?

  • The compounding amount may be 25% less than the calculated amount of fine / penalties that would have otherwise been imposed.
  • In case of repeated contraventions (within 5 years) in respect of which compounding has been done on earlier occasion, the compounding amount may be increased by 50% of the calculated compounding amount, subject to limits prescribed under statutory provisions.

What is the timeline for payment of monetary penalty or compounding amount?

  • The monetary penalty or compounding amount shall be payable within 30 days from the date of receipt of penalty or compounding order.
  • In case of failure to pay the penalty amount, RBI may initiate appropriate action against the contravener as per section 8 or section 30 (3) or section 33 of the PSS Act.
  • In the event of failure to pay the compounding amount within the stipulated time, it shall be deemed / treated as if the contravention has not been compounded and the applicant may become liable for being criminally proceeded with before the court of competent jurisdiction and / or such other action as RBI may deem fit in accordance with law. The applicant would not be entitled to file another application for compounding the contravention in respect of which the compounding order was passed.

What are the disclosure requirements?

The entities shall disclose the details of monetary penalty imposed in their Notes to Accounts that are part of Annual Financial Statements for the financial year in which the penalty is levied.


References

Reserve Bank of India. (2025, January 30). 'Framework for imposing monetary penalty and compounding of offences under the Payment and Settlement Systems Act, 2007'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12773&Mode=0


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

National Strategy for Financial Inclusion (NSFI) 2025-30

Reserve Bank of India (RBI) has published National Strategy for Financial Inclusion (NSFI) 2025-30. Financial Inclusion The Committee on Financial Inclusion (Chairman: Dr C Rangarajan, RBI, 2008) defined financial inclusion as “the process of ensuring access to financial services, timely and adequate credit for vulnerable groups such as weaker sections and low-income groups at an affordable cost”. The Committee on Medium-Term Path to Financial Inclusion (Chairman: Shri Deepak Mohanty, RBI, 2015) viewed financial inclusion as, “convenient access to a basket of basic formal financial products and services that should include savings, remittance, credit, government-supported insurance and pension products to small and marginal farmers and low income households at reasonable cost with adequate protection progressively supplemented by social cash transfers, besides increasing the access of small and marginal enterprises to formal finance with a greater reliance on technology to cut costs an...
Post a Comment
Read more

RBI’s Monetary Policy (December 05, 2025): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on December 05, 2025. Here are some of the highlights of the monetary policy announcement. Rates   Change Rate Policy repo rate Reduced by 25 bps 5.25% Standing deposit facility (SDF) rate 5.00% Marginal standing facility (MSF) rate 5.50% Bank rate 5.50% Monetary policy stance Monetary policy stance unchanged as ‘neutral’. Domestic Economy  Real Gross Domestic Product (GDP) growth accelerated to 8.2% in Q2, buoyed by strong spending during the festive season which was further facilitated by the rationalisation of the goods and services tax (GST) rates.  Real GDP growth for 2025-26 is projected at 7.3%. For the first time since the adoption of flexible inflation targeting (FIT), average headline inflation for a quarter at 1.7% in Q2, breached the lower tolerance threshold (2%) of the inflation target (4%). It dipped further to an all-time low of 0.3% in October 2025. The underlying inflation pressu...
Post a Comment
Read more

Export / Import of Currency and Possession / Retention of Foreign Currency

Reserve Bank of India (RBI) has updated the guidelines on export and import of currency. What are the guidelines on export and import of Indian currency? Transferor Transfer from Transfer to Nature of currency Maximum limit Person resident in India India Countries other than Nepal and Bhutan Currency notes of Government of India (GoI) and RBI notes ₹25000 per person Commemorative coins 2 coins Person resident in India gone out of India on temporary visit, on his return Countries other than Nepal and Bhutan India Currency notes of GoI and RBI notes ₹25000 per person Person resident outside India (not citizen of Pakistan / Bangladesh) visiting India India Any country Currency notes of GoI and RBI notes ₹25000 per person Any country India Person (not citizen of Pakist...
Post a Comment
Read more

Small Value Digital Payments in Offline Mode

An active internet connection is necessary for carrying out any digital payments. However, Reserve Bank of India (RBI) has introduced a framework for carrying out small value digital payments in offline mode. What is offline payment? An offline payment means a transaction which does not require internet or telecom connectivity to take effect.  What is the basis of framework for small value digital payments in offline mode? Reserve Bank of India (RBI) had, vide circular dated August 06, 2020, permitted a pilot scheme to encourage technological innovations that enable small value digital transactions in offline mode. It was stated therein that the decision on formalising such a system would be based on the experience gained. With encouraging feedback from the pilots, a framework for carrying out small value digital payments in offline mode across the country has been introduced. What are the instructions for Payment System Operators (PSOs) and Payment System Participants (PSPs)? Auth...
Post a Comment
Read more

Rupee Interest Rate Derivatives

Reserve Bank of India (RBI) has issued directions on rupee interest rate derivatives. What is Interest Rate Derivative (IRD)? Interest Rate Derivative (IRD) means a financial derivative contract whose value is derived from one or more Rupee interest rates, prices of Rupee interest rate instruments, or Rupee interest rate indices. To which transactions shall the directions be applicable? The directions shall be applicable to Rupee IRD transactions undertaken in the over-the-counter (OTC) market and on recognised stock exchanges in India. Forward Contracts in Government Securities shall be undertaken in the OTC market in terms of the Reserve Bank of India (Forward Contracts in Government Securities) Directions, 2025, dated February 21, 2025. Who are eligible participants in IRD markets? Resident Non-resident, through its central treasury or its group entity, where applicable.  What are the directions on trading of IRDs on recognised stock exchanges? A recognised stock exchange is per...
Post a Comment
Read more