Home / Industry / Banking /  RBI penalizes JPMorgan for risk norms violation

Mumbai: The Reserve Bank of India (RBI) said on Friday it penalised JP Morgan Chase NA for violation of norms related to risk management and inter-bank dealings that took place a year ago, in fiscal 2012.

“On a careful examination of the bank’s written reply and the documents available on record, the Reserve Bank found that the violations were conclusively established and a penalty of Rs5 lakh was thus imposed," an RBI release said.

The Indian central bank had issued a show-cause notice to the US lender first and imposed a penalty as it was not satisfied with the explanation.

A JP Morgan spokeswoman said the bank had “noted the central bank’s concern and had taken remedial action."

Globally JP Morgan is recovering from $6 billion in losses because of bets on derivative trades last year. On Friday, the US bank announced its earnings for the January-March quarter, which showed that profit increased to $6.5 billion or $1.59 per share from $4.9 billion or $ 1.31 per share in the corresponding period last year.

This is not the first time the RBI has fined a bank for not following its rules. In April 2011, the central bank fined 19 public, private sector and foreign banks, including State Bank of India, HDFC Bank Ltd, ICICI Bank Ltd and Citibank NA, a total of Rs1.95 crore for violating norms related to trades in derivatives.

In October 2012, RBI penalised private sector ICICI Bank and ING Vysya Bank Ltd Rs55,00,000 and Rs30,00,000, respectively, for failure to follow the central bank’s norms on know-your-customer procedures, anti-money laundering standards and combating the financing of terrorism.

Banks take the RBI penalty seriously even though the amount is small as there’s a reputation risk attached.

“Banks have been regularly fined both globally and domestically which shows that regulators across the globe have been proactive in discouraging and detecting any mismanagement by banks," said an official from a rating agency who refused to be named because he’s not allowed to speak to the media.

In December, HSBC Holdings Plc agreed to pay a record $1.92 billion in fines to US regulators in a money laundering case involving Mexican drug cartels.

In India, JP Morgan’s business is dominated by investment banking though it also has private equity, asset management and treasury and securities services. It operates a global service centre from India but has only a single branch in the country.

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