RBI to act against banks in investigation operation

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RBI to act against banks in investigation operation

Speaking to newspersons in Delhi, RBI deputy governor H R Khan said that the central bank is initiating action against the three — ICICI Bank, HDFC Bank and Axis Bank. “Scrutiny has been done, action is being taken both in respect of systemic level and at the individual banks,” he said when asked if RBI has completed investigations on the web portal’s exposes. “I will not be able to tell you the details but action is being taken ,” he said on the sidelines of an event organized by National Housing Bank here. “I can’t give you a time frame, but it will be soon,” he said.

According to banking sources, the standard operating procedure of the regulator once it identifies a violation is to issue a show-cause notice. Senior executives of the concerned bank are given a hearing and subsequently RBI decides on the penalty. At a systemic level, RBI is expected to come out with new norms on the incentive and sales process followed by banks in distribution of third party products such as insurance and gold bars.

The online news portal had sent undercover operatives to branches of HDFC Bank, ICICI Bank and Axis Bank with the operative claiming that he wished to launder cash running into crores belonging to a politician . Earlier, RBI could impose a maximum penalty of Rs 5 lakh per offence. With the Banking Regulation Amendment Act coming into force, RBI can impose penalties up to Rs 25 lakh. Even when the limit on penalty was Rs 5 lakh, RBI had imposed higher penalties by compounding the offences. In other words, imposing a separate penalty for each instance.

This is not the first time RBI is taking concerted action against banks for violations which were seen as somewhat systemic issues pertaining to a section of banks. Two years ago, the central bank imposed penalties on 19 commercial banks including SBI, HDFC Bank, ICICI Bank and Citibank for violating norms on derivatives . The violations included failure to carryout due diligence in regard to suitability of products and selling derivatives products to users not having risk management policies. Along with penalties, the central bank had also come out with new guidelines on derivatives to prevent similar situations in future.

Earlier in 2006, RBI had fined dozens of banks in the IPO scam. The ‘IPO scam’ referred to the discovery of over 45,000 fictitious demat accounts opened by fraudsters to corner shares reserved for retail investors in initial public offerings (IPOs). At that time, RBI had imposed penalties on banks for each violation and this was followed by a massive clean-up operation where banks deduplicated depository receipt accounts

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