RBI imposes Rs4.5-cr penalty on three state-run banks for rules violations

The Reserve Bank of India (RBI) has imposed monetary penalty on three banks for violation of regulatory guidelines and RBI's India instructions, including Know Your Customer (KYC) and Anti Money Laundering (AML) norms.

The central bank imposed a combined Rs4.5 crore penalty on three state-run banks, including Bank of Maharashtra, Dena Bank and Oriental Bank of Commerce, with each bank paying up Rs1.5 crore in fine.

Eight other banks, Central Bank of India, Bank of India, Punjab and Sind Bank, Punjab National Bank, State Bank of Bikaner & Jaipur, UCO Bank, Union Bank of India and Vijaya Bank have been cautioned to put in place appropriate measures and review them from time to time to ensure strict compliance of KYC requirements in future.

The penalties have been imposed in exercise of powers vested in the Reserve Bank under the provisions of the Banking Regulation Act, taking into account the violations of the instructions / directions / guidelines issued by the RBI from time to time.

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

RBI noted that on the basis of a complaint received from a private organisation, it had undertaken a scrutiny of fixed accounts opened in the entity's name in Mumbai-based branches of certain public sector banks in July 2014.

With more complaints and involvement of other banks coming to light, a wider thematic review was conducted and in all 12 branches of 11 public sector banks were covered.

The scrutiny revealed the modus operandi of the alleged frauds involving accounts of certain organisations in these banks, deficiencies / irregularities while opening FD and extending overdraft facility.

Besides the effectiveness of systems and processes in place pertaining to implementation of KYC norms / AML standards in respect of these accounts was also looked into.

The findings revealed violation of certain regulatory guidelines issued by the Reserve Bank as also other disquieting actions on the part of the banks, such as non-adherence to certain aspects of KYC norms like customer identification and acceptance procedure; non-adherence to RBI's instructions on monitoring of transactions in customer accounts and on receipt of funds received through Real Time Gross Settlement System (RTGS) and opening of fixed deposit accounts and granting overdrafts there against without due diligence or process.

RBI also noted weaknesses in the internal control systems, management oversight, use of internal accounts for parking customer funds, etc and involvement of middlemen/intermediaries in opening of the accounts as also subsequent operations in those accounts.

Based on the findings, RBI said, it had issued show cause notices to 11 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 of serious nature were substantiated and warranted imposition of monetary penalty.