RBI has raised some red flags but as of now it is not too clear as to how serious these allegations are. Small finance banks (SFBs) like Ujjivan are subject to periodic inspections and audit by the RBI under the Banking Regulation Act and the RBI Act. In its latest audit of the books of Ujjivan, RBI had red-flagged some key issues. Here are some of the key points highlighted by the RBI in the Ujjivan case.

· RBI raised concerns over a system to tag PSL advances, miscategorising of PSL advances, and the charging of processing fees on PSL loans. RBI was also worried about the absence of any proper and audited methodology to assess borrowers.

· RBI has also red-flagged that a high proportion of bulk deposits were concentrated in just a handful of top 20 depositors of Ujjivan. After the recent PMC Bank episode, the RBI has become extra careful about such concentration of deposits which escalated into a major issue for small depositors.

· RBI also noted that some of the asset centres of Ujjivan SFB were actually offering liability products without RBI approval. This in contravention with the rules laid out by the RBI in such cases.

· RBI has also pointed to weak customer grievances redressal mechanism and deficiencies in AML and KYC protocols and has also expressed concerns that these could escalate into larger problems at a later date.

· Finally, RBI has also pointed to discriminatory interest rate on a particular date for deposit of the same tenor and same amount. The RBI pointed out that the rate of interest mentioned in certain sanction letters were different from those mentioned in the loan agreements.

Some of the points noted by the RBI are largely procedural in nature and it is a warning to Ujjivan to put its house in order. I don’t think the situation is as grave as to warrant you to close your deposits, although it is always advisable not to keep large deposits in such banks. You must take the call accordingly.