The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs 6.20 lakh on Five Star Business Finance Limited for non-compliance with certain provisions of the Know Your Customer (KYC) Directions and Fair Practice Code guidelines.

The penalty was levied through an order dated June 18, 2026, under the powers conferred on the RBI by the Reserve Bank of India Act, 1934.

The action follows a statutory inspection conducted by the central bank with reference to the company's financial position as of March 31, 2025. Based on supervisory findings and subsequent correspondence, RBI issued a show-cause notice to the company seeking an explanation as to why a penalty should not be imposed.

After reviewing the company's written response and oral submissions during a personal hearing, RBI found that the company had failed to implement a robust software system for the effective identification and reporting of suspicious transactions. Additionally, the company did not adequately disclose its risk-based approach and the rationale for charging different interest rates to different categories of borrowers in application forms and sanction letters.

The RBI clarified that the penalty is based on deficiencies in regulatory compliance and does not question the validity of any transactions or agreements entered into by the company with its customers. The central bank further noted that the penalty is without prejudice to any other regulatory action that may be initiated against the company.