The State Bank of India top brass and a three-member Reserve Bank of India team had the first meeting with the US Federal Reserve on Monday on Indian banks' operations in the US.
Correspondent banking services of the Indian banks operating in the US and some of the escrow accounts held at the New York branch of the SBI have come under the microscope of the US Fed.
These escrow accounts are operational in connection with India's annual repayment of Russian debt. The regulator is in the look out for dirty money which could have unwittingly been laundered through Indian bank branches in the US.
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This is in line with the US government's plan on clamping down on money laundering. The authorities have recently frozen accounts of some of the terrorist organisations.
The SBI team camping in New York consists of chairman Janaki Ballabh, deputy managing director international banking P K Sarkar and chief general manager (international banking) Indrajit Gupta. Senior officials of the department of banking operations and development (DBOD) of the central bank comprise the RBI team.
"The US regulators are closely looking into the correspondent banking arrangement of Indian banks. They have asked SBI the status of the escrow accounts being held at its New York branch. These accounts were opened with the RBI permission for the purpose of genuine trade transactions to clear the Russian debt," said a source familiar with the development.
The debt-repayment agreement is part of the Agreement on Trade and Economic Co- operation signed between Russia and India on May 4, 1992.
The collective asset base of the Indian banks operating in the US is of around $3 billion. The State Bank of India has nine offices in the US, followed by two of Bank of India and one of Bank of Baroda.
The State Bank of India has four offices in New York, one in Chicago, three in the West Coast including Los Angeles besides a representative office in Washington DC. Bank of India branches are located in New York and San Fransisco. The lone Bank of Baroda branch is located in New York.
Indian banks operating in the US are subject to three-fold regulations: the banking laws of the concerned state where it is licensed to operate, the Federal Reserve as well as Federal Deposit Insurance Corporation (FDIC).