The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹2.70 lakh on Malappuram Finance for failing to comply with regulatory guidelines related to the compensation structure of key managerial personnel (KMP).
According to the central bank, the company paid the entire variable compensation upfront to certain KMPs without deferring a portion of the payment, which is mandatory under RBI norms. The guidelines require regulated entities to defer a part of the variable remuneration of senior executives to ensure prudent risk management and alignment with long-term financial stability.
The regulatory action follows a statutory inspection conducted by the RBI to assess the company’s financial position as of March 31, 2025. During the supervisory review, the central bank identified instances where the lender did not comply with its directions regarding compensation practices for senior management.
Subsequently, the RBI issued a show-cause notice to the company asking why a penalty should not be imposed for the regulatory breach. After reviewing the written response submitted by Malappuram Finance and considering the oral submissions made during a personal hearing, the central bank concluded that the charge against the firm was substantiated.
The RBI clarified that the penalty is based on deficiencies in regulatory compliance and does not question the validity of any transaction or agreement entered into by the company with its customers.
The move highlights the central bank’s continued emphasis on strict adherence to governance and compensation norms for financial institutions to ensure transparency, accountability and sound risk management practices.
