The Reserve Bank of India (RBI) has fined 19 commercial banks, including the country’s largest, State Bank of India, for mis-selling derivatives products to clients.
Seven private sector banks that have been penalised are ICICI Bank, HDFC Bank, Axis Bank, Kotak Mahindra Bank, ING Vysya Bank, Development Credit Bank and YES Bank.
The list includes 11 foreign banks, including prominent ones such as Citibank, Standard Chartered Bank, Hongkong and Shanghai Banking Corporation and Deutsche Bank.
RBI said these banks failed to carry out its instructions on due diligence regarding the suitability of products and sale of derivatives to users not having the right risk management policies.
The banks also “did not verify the underlying or the adequacy of the underlying and the eligible limits under the past performance route,” RBI said.
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Earlier, RBI had issued notices to these lenders. “In response, the banks submitted written replies. On careful examination of the replies and oral submissions during personal hearings, the Reserve Bank found that the violations were established,” it said.
According to analysts, the penalty will hurt private and foreign banks by strengthening the claims of clients who have accused them of mis-selling derivatives products.
“Most of these banks are under law suits from their clients who accused them of mis-selling derivative products. This will only strengthen the claims made by the clients,” said a banking analyst with a domestic brokerage.
In 2008, Bangalore-based textile firm Himatsingka Seide moved court against HDFC Bank after it incurred a mark-to-market loss of Rs 175 crore in a derivative deal.
Several other companies had also dragged some of these banks to courts on similar grounds.
Bankers were not immediately available for comments.