The Reserve Bank of India (RBI) has slapped a penalty of Rs 31.8 lakh on Indian Overseas Bank for non-compliance with certain directions on 'Priority Sector Lending (PSL) - Targets and Classification'.

The central bank has issued a show cause notice to the state-owned bank based on supervisory findings of non-compliance with regulator’s directions and related correspondence in that regard.

"After considering the bank's reply to the notice, additional submissions made by it and oral submissions made during the personal hearing, RBI found that the following charge against the bank was sustained, warranting imposition of monetary penalty," the central bank said.

Indian Overseas Bank collected loan-related charges in certain PSL accounts, each having sanctioned loan of up to Rs 25,000.

The RBI, however, said that penalty is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.