Photo: Bloomberg
Photo: Bloomberg

RBI penalizes 13 banks in foreign exchange scam

Banks include Allahabad Bank, Bank of India, Bank of Baroda, Canara Bank, Corporation Bank, HDFC Bank, IndusInd Bank, Punjab National Bank

Mumbai: The Reserve Bank of India (RBI) on Wednesday said it has penalized 13 banks in response to a foreign exchange scam that took place in October.

“This action 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 and its customers," the central bank said in a statement on its website.

The 13 banks include Allahabad Bank, Bank of India, Bank of Baroda, Canara Bank, Corporation Bank, HDFC Bank, IndusInd Bank, Punjab National Bank, RBL Bank, State Bank of Bikaner and Jaipur, State Bank of Mysore, Syndicate Bank and UCO Bank.

The penalties range between 1 crore and 5 crore, the RBI statement noted.

Three of these banks had already issued notifications to stock exchanges on Monday.

“Eight other banks, namely, Axis Bank, Federal Bank, ICICI Bank, Kotak Mahindra Bank, Oriental Bank of Commerce, Standard Chartered Bank, State Bank of India and Union Bank of India have been advised to put in place appropriate measures and review them from time to time to ensure strict compliance of KYC requirements and FEMA provisions on an ongoing basis," RBI said.

The central bank had conducted a deep scrutiny on advance import remittances in 21 banks in October and November, after it had been tipped off about some irregularities by a public sector bank.

The scrutiny took note of the alleged irregularities in opening and monitoring of accounts including violations under Foreign Exchange Management Act (FEMA) provisions. It also looked into the effectiveness of systems and processes for implementation of know your customer (KYC) norms and anti-money laundering (AML) standards.

Based on its findings, the RBI issued show-cause notices to all banks and sought responses.

“After considering their replies, the facts of each case, as also personal submissions, information submitted and documents furnished, the Reserve Bank came to the conclusion that some of the violations of serious nature were substantiated and warranted imposition of monetary penalty on 13 banks, as the failure on the part of these banks to take timely remedial measures had aggravated the seriousness of the contraventions and its impact," RBI said.

In October 2015, the Central Bureau of Investigation (CBI) conducted raids across bank branches, including those of Bank of Baroda and HDFC Bank, as part of a foreign exchange scam, where bank employees had allegedly liaised with certain people to illegally transfer funds to various accounts in Hong Kong and the UAE, flouting foreign exchange norms set by the central bank.

Bank of Baroda’s Ashok Vihar branch in New Delhi was central to the entire racket, where according to the CBI, more than 6,000 crore worth of funds were transferred illegally.

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