RBI penalises clutch of banks for Telgi link

The Reserve Bank of India (RBI) has penalised a cross-section of public sector, private sector and foreign banks over the multi-crore fake stamp paper scam masterminded by Abdul Karim Telgi.

The latest to join the list of banks is Citibank, which was fined Rs 5 lakh. Citibank officials refused to make any comments, stating "as per our policy, we do not comment on regulatory matters."

Deputy RBI governor K J Udeshi today in Jaipur confirmed that Citibank has been penalised. RBI sources also said that the regulator is probing the role of other banks as well, and would publicise the names of the banks penalised.

Citibank, the largest foreign bank operating in India, is among those penalised for violating the "Know Your Customer" rules laid down by the RBI to curb money laundering.

The rules are designed to keep tabs on depositors and the nature of fund flows. Telgi and his associates had used the banking system to launder money. RBI had earlier this year sought details of over 160 accounts opened by Telgi and his associates in several banks.

Post enquiries from the RBI and a formal order, the affected banks in the Telgi scandal froze the related accounts. This was several months after the arrest of the mastermind behind the fake stamp paper, thereby enabling Telgi's associates to withdraw huge sums from the 160-odd accounts.

Telgi operated his scandal by asking his clients to pay for stamps by cheques and had changed the authorised signatories of the accounts several times.

This is not the first time the RBI has penalised banks. Since 1994, the RBI has found more instances of violations of corporate funding norms at foreign banks than in public sector and private sector banks and had penalised them for the breaches.

The RBI had penalised the American Express Bank Rs 1.67 crore, which is the maximum amount of penalty levied by the RBI. In April 1997, Amex was penalised for violating single and group exposure limits.

The foreign bank was also penalised in February 1997 for advances granted to Tata Sons and Godrej Soaps to enable the respective promoters to increase their stake in their companies.

HSBC was penalised in February 1997 for advances against shares granted to Essar Investments, an investment company which had put money mostly into group entities.

Standard Chartered Bank had been penalised in July 1997 for issuing guarantees to a financial institution for a loan extended by the financial institution to a borrower.

Other foreign banks who have been penalised are Barclays Bank, Bank of Tokyo Mitsubishi, Credit Lioness, Deutsche Bank, Credit Agricole Indosuez and ANZ Grindlays Bank.