Penalty on erring banks aimed at 'naming and shaming'

K C Chakrabarty, deputy governor of the Reserve Bank of India (RBI), today said the practice of fining banks is aimed at naming and shaming. At present, banks could be fined Rs 1 crore for a single violation.

The amount was recently increased from Rs 5 lakh by amending the Banking Regulation Act, after online portal Cobrapost alleged large private sector banks were violating anti-money laundering as well as know-your-customer norms. The central bank conducted an inquiry and served showcause notices on the three banks named by Cobrapost — ICICI Bank, HDFC Bank and Axis Bank.

Earlier, financial services secretary Rajiv Takru and RBI governor D Subbarao had opined that the quantum of fine was not enough. While Subbarao termed Rs 1 crore fine “peanuts”, Takru suggested  the fine be raised to Rs 500 crore.

Chakrabarty today sought to clarify that some misconception about the fine. “Please understand the fine of Rs 1 crore is per violation, and not overall fine,” he said.

Chakrabarty added that in a democracy, Parliament is supreme and if Parliament has taken some decision, one should respect it.

“I feel whatever law Parliament has framed, it is adequate and I don’t find any problem and if I find any problem, I have to go back to Parliament and say that there is a need to change the law and at present, we don't feel that," Chakrabarty told reporters on the sidelines of the Skoch summit here.

He noted that while the purpose of the fine is only to name and shame the offenders, they should not be allowed to get away by only paying up.

On being asked how many banks have replied to RBI’s showcause notices, he said some banks have responded with explanations, while others have sought additional time.