Catholic Syrian fined for KYC violation

The Reserve Bank of India (RBI) has imposed a penalty of Rs 10 lakh on Catholic Syrian Bank (CSB), a Kerala-based small private sector bank, for violation of know your customer guidelines.

The penalty was imposed after the regulator received a reply from the bank to its showcause notice.

RBI said, "On a careful examination of the bank's replies, the RBI found that the violations were conclusively established and the penalty was accordingly imposed."

The bank was also charged a fine for failure of its internal control systems in detecting the irregularities. In the recent past, the RBI had penalised ICICI Bank, HDFC Bank, Citibank, Standard Chartered Bank, Centurion Bank of Punjab, Vijaya Bank, erstwhile Bharat Overseas Bank and Indian Overseas Bank for non adherence to KYC norms in the IPO scam.

The Thrissur-based CSB is scouting for a chairman. The bank's company secretary and communications manager said they were not aware of the development.

P C Varghese, chief general manager, CSB who has taken charge of the bank after N R Achan resigned as chairman said, "I am out of station and am not aware of this.''

The bank's plan to raise fresh capital through a preferential allotment of about 15 per cent stake to Asian private equity firm, AIF Capital Development, is also pending with the banking regulator.

The Foreign Investment Promotion Board has cleared the proposal but the RBI guidelines restrict any single private equity firm's holding in a private sector bank to 5 per cent.

The bank with a capital adequacy of 9.58 per cent at the end of 2006-07 has been struggling to raise capital.

Its also grappling with the central bank's refusal to transfer shares of the bank acquired by Singapore-based Chawla group, which had purchased about 36 per cent stake in 1997 for Rs 85 a share.

The purchase of shares by the Chawla group was approved by the bank's board and it also received clearance from the the FIPB and the Cabinet Committee on Foreign Investment (CCFI) in early 1997.

However, the RBI rejected the group's request for transferring the bank's shares in its name. The only occasion the bank raised capital was in 1999. It had raised around Rs 26 crore through a rights offer, with Chawla not subscribing to his entitlement.

It is imperative for CSB to raise capital to adhere to the RBI's norms on minimum capital requirements for private sector banks, which require all private sector banks to increase their networth to a minimum of Rs 300 crore. CSB's networth in at the end of 2006-07 was around Rs 229.39 crore.