The Telegraph
Since 1st March, 1999
Email This Page
Seven banks in the dock

Mumbai, Jan. 23: The Reserve Bank of India (RBI) today slapped penalties ranging between Rs 5 lakh and Rs 20 lakh on seven banks, which have been dragged into the share allotment scam that rocked several initial public offerings (IPOs) last year.

The banks that have been penalised include Bharat Overseas Bank, Indian Overseas Bank (IOB), HDFC Bank, Vijaya Bank, Citibank, ICICI Bank and Standard Chartered.

The scamsters had opened hundreds of demat accounts in fictitious names in order to increase their chances of cornering share allotments from the IPOs. The banks have been penalised for failing to screen insidious customers, violating prudent banking practices and providing IPO finance to ineligible borrowers

The action against the banks comes almost a month after the Securities and Exchange Board of India (Sebi) uncovered the demat scam.

The penalties were levied under the provisions of Section 47 A (1)(b) of the Banking Regulation Act, 1949, and came after the central bank issued showcause notices to the banks.

The banks had submitted their written responses and the CEOs had also asked for a personal hearing with the RBI, which was granted.

“On careful examination of the banks’ responses, the RBI has decided that the aforesaid violations were substantiated and accordingly the monetary penalties are imposed,” the central bank said.

Bharat Overseas Bank and Vijaya Bank were named by Sebi in the Yes Bank case. HDFC Bank, Indian Overseas Bank, ING Vysya Bank apart from Bharat Overseas and Vijaya Bank were indicted for irregularities in the IDFC offering. The RBI has, however, not included ING Vysya Bank in the first round of penalties.

The highest penalty of Rs 20 lakh was slapped on Bharat Overseas Bank. According to RBI, this penalty was fixed as the bank had committed various irregularities.

While the bank extended IPO finance to fictitious individuals without appropriate due diligence to establish their identity, it also provided intra-day funding of margin money to brokers. Moreover, the bank had extended huge amounts to a group of accounts through benami individuals in violation of the RBI directive on limits on funding of IPOs, (which specified a limit of Rs 10 lakh per individual).

IOB was penalised Rs 15 lakh. The RBI said it had violated guidelines with regard to opening of multiple accounts and extending IPO finance to various fictitious individuals.

The Bangalore-based Vijaya Bank was fined by the central bank for Rs 10 lakh.

HDFC Bank was singled out by the central bank for violating its guidelines relating to opening of deposit accounts, and monitoring of transactions for adherence to know-your-customer (KYC) norms and failure of internal controls. It was slapped a penalty of Rs 5 lakh.

A penalty of Rs 5 lakh was also imposed on Citibank for violating RBI guidelines relating to monitoring of suspicious transactions and adherence to KYC norms.

Standard Chartered was also fined the same amount for violating guidelines relating to KYC norms. Similar charges have been brought against ICICI Bank, which failed to comply with guidelines relating to opening of accounts.

Email This Page