The State Bank of India (SBI) has revamped its US operations in order to ensure compliance with all applicable federal and state laws in the United States.
The bank, which has three branches in New York ((Broadway, Park Avenue and Flushing), one in Chicago (Illinois) and an office in Los Angeles, has appointed consultancy firm Ernest & Young to conduct a comprehensive review of the bank's operations. It is also in the process of appointing Ernst & Young as a statutory auditor for the bank, replacing its existing statutory auditor Deloitte Touche.
The bank is also taking a relook at its correspondent banking relationship in the US. Citibank will now handle interest payments to the Resurgent India Bond (RIB) holders. Till now, SBI branches in the US were handling the payments. "We have correspondent banking relationships with 19 US banks. There is a reshuffle in this segment," an SBI source said.
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T S Vidyanathan, president and chief executive officer of SBI's New York operations, has been appointed as the country manager, responsible for the bank's entire US operations. This has been done at the instance of the US Federal Reserve which had asked the bank to appoint a senior official to look after its US operations.
Sources in the bank said normalcy had returned to SBI's US operations even though the bar on remittances from non-customers' accounts still exists. "The systems and procedures have been recast in accordance with local regulations. There is no problem in the US operations," said a source.
The US Federal Reserve restrained SBI from opening any new account in the States till it satisfied the US regulators by putting in place proper systems and procedures in accordance with the Office of Foreign Assets Control of the US Department of Treasury (OFAC).
The Fed had also said that from November 23, SBI's US operations would not accept any non-resident Indian (NRI) fund "for transfer outside the US, by draft or wire transfer, if the customer does not maintain a deposit account with SBI-US in the United States, unless SBI-US (when acting as the originator's bank) first verifies the identity of the remitter, and (when acting as the beneficiary's bank) obtains information regarding the beneficiary" with proper due diligence.
SBI entered into a memorandum of understanding with the Fed board of governors, the Federal Deposit Insurance Corporation and the New York State Banking Department on November 13.
The US authorities issued a cease and desist order and imposed a fine of $7.5 million on the SBI for "apparent violation of FDIC rules and regulations... engagement of unsafe and unsound practices" and "apparent violations of the New York Banking Law" as well as its failure to establish and maintain procedures in conformity with the Bank Secrecy Act. However, it did not cite any specific instance of violation of rules. Going by the terms of the MoU, by December 13 the SBI was required to appoint an independent firm, acceptable to the supervisors, to undertake a comprehensive review of its US operations, including internal control, risk management, internal audit, policy and procedures and compliance with federal and state laws, besides customer due diligence.
SBI is also in the process of furnishing details with respect to 43 contentious escrow or nostro accounts that have been on the books of the Park Avenue branch which the US regulators had asked for.
The bank is also ready to furnish quarterly progress reports "detailing the form and manner of all actions taken to secure compliance" with the US Fed order.