Swooping in

Mumbai, Feb. 27: The Reserve Bank of India (RBI) today imposed monetary penalties ranging between Rs 5 lakh and Rs 25 lakh on three banks in the demat scam case. The banks included HDFC Bank, ING Vysya Bank and IDBI Ltd.

This is the second time in a month that the central bank is penalising banks for violation of Know Your Customer (KYC) norms, breach of prudent banking practices and misuse of IPO finance to ineligible borrowers.

In January, the RBI imposed monetary penalties ranging between Rs 5 lakh and Rs 20 lakh on Indian Overseas Bank (IOB), HDFC Bank, Vijaya Bank, Citibank, ICICI Bank, Bharat Overseas Bank and Standard Chartered Bank.

HDFC Bank was again at the receiving end when the central bank imposed a penalty of Rs 25 lakh. In January, it had to pay a fine of Rs 5 lakh. This time round, the RBI said the leading private sector bank had committed various irregularities. It did not display prudence while opening 217 savings bank accounts with one common name and multiple unconnected names.

The accounts were used for opening 1142 demat and 24 loan-against-share accounts, which, in turn, were used to make multiple applications for several IPOs. HDFC Bank has also slipped on KYC norms.

The RBI added that the bank did not adhere to its existing guidelines with regard to monitoring of large- value transactions in customer accounts.

Moreover, the bank violated RBI directions with regard to advances against shares and it issued bulk cheques (around 4000 cheque books totalling about one lakh leaves) to one individual who effectively controlled operations in 24 loan against share accounts.

ING Vysya Bank has to pay up Rs 10 lakh. The RBI said the bank did not adhere to KYC norms in opening joint savings bank accounts and it failed to verify the address of the first account holders, solely relying on principal joint account holder identity. It did not apply any due diligence in establishing the relationship between the joint account holders. ING Vysya Bank also violated the RBI?s instructions on IPO finance, particularly the limit on maximum permissible finance per borrower.

With regard to IDBI, the RBI said the bank has extended IPO finance in excess of the limit specified for individuals by allowing pooling of funds by certain individuals. The Mumbai-based bank was levied a penalty of Rs 5 lakh.

An RBI statement said the penalties were levied under the provisions of Section 47 A (1)(b) of the Banking Regulation Act, 1949 for breach of prudent banking practices and for not adhering to its directives/ guidelines relating to loans against shares/IPO. The Reserve Bank had issued show cause notices to these banks. In response to the show cause notices, banks had submitted their written responses and the chief executive officers had also sought personal hearing with the Reserve Bank, which was granted.

?On careful examination of banks? submissions, the Reserve Bank has come to a conclusion that the aforesaid violations were substantiated and the monetary penalties were imposed. The quantum of the penalty has been decided on the basis of the magnitude and enormity of the contravention/violation observed in each bank,? the RBI added.