RBI fines 48 banks for violation of various norms

At a time when the government is grappling with the black money menace, the RBI has penalised as many as 48 small banks in just six months, for lapses in implementing customer identification norms and various other violations.

In the first six months of 2011, the apex bank has slapped penalties on 48 erring banks -- mostly co-operative -- as compared to just 15 such actions during 2010.

The apex bank has so far slapped penalties between Rs 1 lakh and Rs 5 lakh on 48 banks during January-June period, according to official data.

On its part, the government has adopted a multi-pronged strategy including setting up of special panels and review of tax treaties with different countries, to curb black money menace.

Most of the erring small banks were found violating guidelines issued by the RBI on Know Your Customers (KYC) norms and Anti-Money Laundering (AML) standards.

"RBI is sending right signals as laxity on KYC norms is a serious matter as it compromises transparency," Crisil Principal Economist D K Joshi said.

He said the central bank has been regulating the financial pretty well and strong vigil is good for the sector.

Earlier this month, the RBI had slapped a penalty of Rs 25 lakh on US-based Citibank contravention of various guidelines and instructions relating to KYC and AML.

The failure in following the KYC/AML guidelines while opening accounts led to the perpetration of a fraud at Citibank's Gurgaon branch.

While large lenders carry out proper due diligence in dealing with customers, experts felt that there could be some deficiency on this front in the case of smaller banks.

"Small banks cannot afford to spend a lot on IT infrastructure and this could be one of the reasons that at times they fail to adhere to various guidelines issued by RBI," SMC Global securities Head of Research Jagannadham Thunuguntla said.

Besides KYC and AML norms, many of the small banks have been found violating RBI guidelines on various issues including unsecured financial guarantees and unsecured advances in excess of the prescribed ceiling.