RBI fines 19 banks a total of Rs1.95 cr

RBI fines 19 banks a total of Rs1.95 cr

Mumbai: The Reserve Bank of India (RBI) on Tuesday fined 19 public and private sector banks, including State Bank of India, HDFC Bank, ICICI Bank Ltd and Citibank, a total of 1.95 crore for violating norms related to derivatives.

“The penalties have been imposed on these banks for contravention of various instructions issued by the Reserve Bank in respect of derivatives," the central bank said in a release.

Also See | Complete list of the banks and the fines

The lenders failed to carry out due diligence with regard to suitability of products and sold derivative products to companies not having risk management policies, RBI said. They also failed to verify the adequacy of eligible limits before selling derivatives, it added.

Banks sell derivatives to help companies hedge risks against fluctuations in foreign exchange value and interest rates, and earn a fee.

Several companies suffered losses on derivatives because of unforeseen fluctuations in foreign exchange values in the wake of the global financial crisis in 2008. Many companies later claimed they were mis-sold these products by the banks without explaining the risks attached with such instruments and also moved the court to recover the losses. One of the cases pertaining to losses incurred on account of derivatives contract is still pending in the Supreme Court.