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Over 30 banks flouting prescribed guidelines: RBI audit report


Gopika Gopakumar,CNBC-TV18
May 30, 2013 at 11:52am IST

Mumbai: India's banking system is not as strong as expected. An RBI report shows that over 30 banks have failed to follow or enforce various prescribed rules and guidelines. CNBC-TV18 has accessed the report of the audits instigated by the RBI after the Cobrapost expose, which shows that 30 banks, whether from the Public Sector, the private sector, or Foreign, have not followed the prescribed rules.

It doesn't matter whether it's a banking giant like the SBI, the Punjab National Bank, Citibank, Kotak Mahindra Bank and Standard Chartered, or a smaller bank like the Central Bank, Development Credit Bank and Indian Overseas Bank, Know Your Customer norms have been violated at multiple instances by each of the 30 banks audited.

One major finding is that bank systems did not flag or throw up alerts when multiple Demand Drafts worth Rs 50,000 were issued to the same person, sundry deposits of over Rs 50,000 were opened to issue gold coins and Demand Drafts and in multiple transactions of Rs 9.9 lakh by a single party on a single day, to avoid the Rs 10-lakh threshold.

The RBI report also shows that some banks failed to generate Cash Transaction Reports and Suspicious Transaction Reports due to the absence of Unique Customer Identification Number. For instance, Bank Of Baroda had 257 customer Ids for one customer.

Also, 15 banks including the Deutshe Bank, RBS, Citibank and Punjab National Bank, have opened accounts for dummy PAN cards. 193 such instances were found in the Kotak Mahindra Bank, where different customers had the same PAN. In another instance, some branches of Citibank had wrong KYC documents and failed to update KYC details for nearly 92 per cent of the customers.

But the violations do not stop there. The RBI's thematic review says even the rules that apply to third-party products, like insurance and mutual funds, sale of gold coins have been flouted at many of the audited branches. But more interestingly, the study has revealed a nexus between co-operative banks and commercial banks.

Central Bank, for instance, opened 200 accounts of the Sahara Credit Cooperative Society in different branches and on many occasions, high-value deposits were made into these accounts, a few as high as Rs 63 lakh and crucial details like PAN and business profile were missing from the bank's records.

RBI also observed several violations in the NRE/NRO accounts opened at some of the bank branches. The study says Standard Chartered, Kotak Mahindra Bank and SBI allowed cash deposits of more than Rs 50,000 in these accounts without proper PAN or Form 16.

The RBI has also found that a few banks gave employees incentives to encourage the sale of third party products with the incentives taking the form of foreign training or white goods. The RBI has forwarded these findings to all the 30 banks that were audited and will share the details with other regulators like Sebi and IRDA. These regulators will now begin work on plugging the gaps, which means that some of the existing regulations may be amended. But what the erring banks have to look forward to is the penal action that the RBI is contemplating for the violations.

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