RBI fines 48 banks for violation of KYC/AML norms

11 Jul 2011 Evaluate

The Reserve Bank of India (RBI) has imposed penalty on around 48 banks all over the country on charges of violation of Know You Customer (KYC) norms and various other violations. In the first six months of 2011, the central 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.

Earlier this month, the apex bank had penalized Rs 25 lakh on US based Citibank for breaking various guidelines and instructions related to KYC and Anti-Money Laundering (AML). The failure in following the KYC/AML guidelines while opening accounts led to the perpetration of a fraud at Citibank's Gurgaon branch.

Experts on the banking sectors find central bank’s action in the right direction as breaking the KYC norms is a serious issue because it compromises transparency in the banking systems. The steps taken by the central bank will improve the transparency which is good of the sector.

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. On the other hand, small and co-operative banks can’t afford to spend huge amount of money on setting up IT infrastructure and due to this reasons small banks fails to meet the various guideline issued by the central bank.

Besides KYC and AML norms, many small and co-operative banks also has been found violating RBI guidelines on various issues counting unsecured financial guarantees and unsecured advances in excess of the prescribed ceiling.