Foreign Banks Flouted Corp Funding Norms The Most

The Reserve Bank of India (RBI) has found more instances of violations of corporate funding norms at foreign banks than in public sector and private sector banks.

As a result, the RBI has levied penalties on a clutch of these banks since January 1994 under the provisions of Section 46 and 47A of the Banking Regulations Act, 1949, the RBI told the Joint Parliamentary Committee (JPC) probing the recent stock market scam.

In an exhaustive reply to the JPC's query on action taken against errant banks, the RBI said the American Express Bank (Amex) has been penalised Rs 1.67 crore, which is the maximum amount of penalty levied by the RBI since 1994.

In April 1997, Amex had been penalised for violating single and group exposure limits. It had also been penalised in February 1997 for advances granted to Tata Sons and Godrej Soaps to enable the respective promoters to increase their stake in their companies.

HSBC was penalised in February 1997 for advances against shares granted to Essar Investments, an investment company which had put money mostly into group entities.

Standard Chartered Bank had been penalised in July 1997 for issuing guarantees to a financial institution for a loan extended by the financial institution to a borrower.

Other foreign banks who have been penalised are Citibank, Barclays Bank, Bank of Tokyo Mitsubishi, Credit Lioness, Deutsche Bank, Credit Agricole Indosuez and ANZ Grindlays Bank.

Among private banks, Bank of Rajasthan (BoR) and United Western Bank (UWB) have been penalised the maximum number of times -- 5 times each, the documentation reveals.

BoR had been penalised in January 1997 for issuing stock invest certificates to individuals to subscribe to the public issue of companies in which their relatives were directors or promoters. It had also been penalised for violating norms of advances against shares, cheque purchase facility and irregularities in bill discounting.

UWB has been penalised for violation of guidelines of interest free loans to employee equity trust for acquisition of the bank's shares in May 2001. It has also attracted penalties for irregular transactions in Makharia group of companies, and irregularities in bill discounting.

The RBI had also issued a show cause notice for imposition of monetary penalty after finding out about Global Trust Bank's exposure to Ketan Parekh. The notice was sent after a special scrutiny by its officials, RBI said.

Sangli Bank has also been penalised for alleged fudging of accounts in October 1998. The bank had also been penalised in May 1996 for irregular method of accounting.

The other private sector banks which have been penalised are UTI Bank, Bank of Madura, and Centurion Bank. The list of public sector banks penalised includes State Bank of Travancore, Allahabad Bank, Dena Bank, Syndicate Bank, Oriental Bank of Commerce, Vijaya Bank and Indian Bank.