Fintotal News Analysis | Axis Bank, HDFC Bank, ICICI Bank Fined for Flouting KYC Norms
Axis Bank, HDFC Bank, ICICI Bank Fined for Flouting KYC Norms
Ruby Jacob, 11 Jun 2013

Leading private banks Axis Bank, HDFC Bank and ICICI Bank were penalized by RBI for violating a number of norms, including KYC rules. Here are few details on errors committed by these top banks.

The RBI regulates banking sector in India and all banks need to adhere to its directions. If and when it notices players violating rules it can take penal action. This time the practice of certain banks treating KYC norms and other norms lightly was exposed in a sting operation by Cobrapost. Although they accused the banks of being party to money laundering, RBI's investigation could not find evidence of it.

But it has found the banks guilty of a number of violations relating to:

1. Not keeping safeguards in arranging 'at par' payment of cheques drawn by cooperative banks

RBI investigation revealed the arrangement between co-operative banks and commercial banks through which weak KYC compliance of co-operative banks is transmitted to large commercial banks. They open current accounts at commercial banks and issue 'at par' cheques to their customers, even walk-in customers for various purposes. This could open way for black money to enter the banking system.

2. Not categorizing account holders on the basis of risk

HNIs, jewelers, NBFCs, charities etc are in the high risk category but these banks have not classified them correctly. They often engage in high value cash transactions and their accounts are to be monitored more closely.

3. Selling insurance products, gold coins without proper KYC

Banks have always been notorious for incentivizing employees for selling insurance products that earn higher commissions. But this time RBI found that they were flouting KYC norms, especially in case of walk-in customers buying third party products from them. This way huge amount of unaccounted cash can be transferred to the economy through formal insurance and other financial products.

4. Not filing Cash Transaction Report

Banks are supposed to file Cash Transaction Report (CTR) with the government in case of cash transactions of more than Rs 10 lakhs or a series of cash transactions happening in the same month, which are closely linked, even if the amount is less than Rs 10 lakhs. Banks are required to report suspicious cash transactions to the Financial Intelligence Unit (FIU). Very few of the alerted transactions in the banks were reported by them.

5. Not collecting PAN card

These banks have been found of guilty of not obtaining PAN details required for cash transactions above Rs 50,000. They encouraged customers to break high value cash transactions in multiple transactions of Rs 49,999. On some occasions they have used provisions to show Form 61 to show illegal money as coming from agricultural sources. Shockingly, in many instances they have accepted dummy PAN cards to HNIs and also allotted multiple identity numbers to the same customers. RBI rules require banks to allot a unique customer id to each customer.

6. Not re-designating as NRO accounts

When a person becomes an NRI his account should be designated as NRO account by the bank. These banks were violating instructions regarding this. They did not verify source of funds in some of their NRO accounts.

RBI has fined Rs 5 crores on Axis bank, Rs 4.5 crore on HDFC bank and Rs 1 crore on ICIC Bank. Money laundering offences are serious since they can be sources of funding terrorists' and such other illegal activities.

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