RBI slaps penalty on ING Vysya

The Reserve Bank of India (RBI) today imposed a penalty of Rs 5 lakh on ING Vysya Bank for violating guidelines concerning sale of third-party insurance products, calculation of capital adequacy and several other aspects.

This is the first instance of the central bank going public about the imposition of a penalty on a bank.

The RBI said ING Vysya Bank had contravened RBI guidelines in matters such as financing promoters' contribution, offering interest concession to borrowers availing of insurance products floated by its group company, depriving its customers choice in availing of insurance from any company.

The bank was also found classifying ineligible advances under priority sector credit.

RBI said the bank was also guilty of not deducting the full amount of unamortised voluntary retirement scheme expenditure violating regulatory instructions, which resulted in overstating of Tier I capital and capital to risk-weighted assets ratio (CRAR) in the disclosures in its balance sheet for March 31, 2004.

ING Vysya had also not provided for outstanding debit entries in inter-branch accounts pending for more than six months, as required by RBI, thereby impacting profits in 2003-04.

RBI had earlier issued a showcause notice to the bank following which the bank's CEO was given a personal hearing and a written submission was also received from the bank.

RBI decided to penalise the bank as it found violations were substantiated after a careful examination of the submissions.

The disclosure of penalty imposed on ING Vysya Bank is part of RBI's measures to improve transparency at banks. Banks are also required to report penalties imposed in their annual report.