RBI fines Axis, ICICI, HDFC Bank for KYC rule violations

The Reserve Bank of India (RBI) has imposed penalties on Axis Bank, HDFC Bank and ICICI Bank for violating guidelines related to customer identity rules, known as "know your customer" norms.

The action follows regulatory investigations into alleged widespread money laundering practices at their branches following reports by independent news web site Cobrapost.

RBI said it had carried out a scrutiny of books of accounts, internal control, compliance systems and processes of these three banks at their corporate offices and some branches during March / April 2013, to investigate the allegations of contravention of KYC/AML guidelines against them.

The scrutiny of these three banks revealed violation of certain regulations and instructions issued by RBI, namely, non-observance of certain safeguards in respect of arrangement of ''at par'' payment of cheques drawn by cooperative banks, RBI added.

They were also found to have failed to adhere to certain aspects of KYC norms and anti-money laundering (AML) guidelines like risk categorisation and periodical review of risk profiling of account holders.

The banks also failed to adhere to KYC for walk-in customers, including for sale of third party products, omission in filing of cash transaction reports (CTRs) in respect of some cash transactions and sale of gold coins for cash beyond Rs50,000.

Besides the RBI said the banks were guilty of:

• Not-obtaining of permanent account number (PAN) card details or form 60/61 as required;
• Non-verification of source of funds credited to a few non-resident ordinary (NRO) accounts; and
• Failure to re-designate a few accounts as NRO accounts though required, non-submission of proper information called for by the reserve Bank, etc.

The investigation did not reveal any prima facie evidence of money laundering. However, any conclusive inference in this regard can be drawn only by an end-to-end investigation of the transactions by tax and enforcement agencies, RBI said.

Based on the findings of the scrutiny, the RBI issued a show-cause notice to each of these banks, in response to which the individual banks submitted written replies. After considering the facts of each case and individual bank's reply, as also, personal submissions, information submitted and documents furnished, the RBI came to the conclusion that some of the violations were substantiated and warranted imposition of monetary penalty.

Subsequently, Axis Bank was fined Rs5 crore, HDFC Bank Rs4.5 crore and ICICI Bank, the country's second-largest lender, Rs1 crore.

A similar scrutiny was also conducted at the corporate offices of 36 other banks during April and May 2013. The process of follow up action in respect of these banks is at different stages of its completion, RBI said.