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May 09, 2013 at 04:28am IST

SBI California ordered to clean up United States operations

Washington: The California-based subsidiary of State Bank of India (SBI) has agreed to take a series of steps to improve its banking practices related to bad loans following a review by US regulators. The largest Indian bank consented March 6, 2013 to the orders of the federal and state regulators "without admitting or denying any charges of unsafe or unsound banking practices relating to the June 18, 2012, examination".

The Federal Deposit Insurance Corporation (FDIC) provides deposit insurance and examines certain financial institutions for safety and soundness, while the California Department of Financial Institutions (CDFI) regulates the state's banking system.

The March 20, 2013 consent order accepting the SBI subsidiary's plea sets deadlines ranging between 30 days and 120 days from that date for achieving the targets set out by the regulators. The 17-page order, among other things, requires the bank to have and retain qualified management and obtain within 90 days an independent study to ensure it "is staffed by qualified individuals commensurate with its size and risk profile to ensure the safe and sound operation of the bank".

SBI California ordered to clean up US operations

FDIC provides deposit insurance and examines certain financial institutions for safety and soundness, while CDFI regulates the state's banking system.

The order also requires the bank to file with the FDIC "Reports of Condition and Income which accurately reflect the financial condition of the Bank" including "any adjustment in the Bank's books made necessary or appropriate as a consequence of any FDIC and/or CDFI examination of the Bank".

The regulators have also ordered the bank not to "establish any new branches or other offices of the Bank or enter into any new lines of business without the prior written consent of the Regional Director and the Commissioner". The bank is also required to eliminate from its books, by "charge-off" and "collection" (and not write-offs) all assets that the bank has classified as "loss", but have not been previously collected or charged off.

"Elimination of these assets through proceeds of other loans made by the bank is not considered collection for the purpose of this paragraph," the order said. "The bank is to develop a written plan, approved by the board for systematically reducing the level of non-performing assets and/or assets listed on the bank's watch list to an acceptable level," it added.

"Violation of any provisions of this order will be deemed to be conducting business in an unsafe and unsound manner, and will subject the bank to further regulatory enforcement action," said the order, signed by Kathy L Moe, deputy regional director (Risk Management) at FDIC, and Scott D Cameron, chief examiner of the CDFI.