Co-op bank under RBI lens

Regulator detects suspicious transactions of Punjab firm.

The Reserve Bank of India (RBI) has issued a KYC-related show-cause notice to Shalini Sahakari Bank, a Mumbai-based cooperative bank.

The transactions relate to one of its corporate accounts, Endogram Leasing and Finance, a Punjab-based Alchemist Group company.

In its inspection report, RBI has found out that over a period of a month, Endogram has been depositing Rs 1 crore with the cooperative bank and taking it back as loan at the end of the day on a daily basis. RBI has asked the bank to close the account. Faxed queries to the bank and the Alchemist Group did not elicit any response.

The KYC (know your customer) guidelines help banks to check the genuineness of transactions to avoid any laundering of unaccounted money.

There have been several instances of violation of KYC norms. Recently, the income tax (I-T) department found gross violation by banks in monitoring foreign exchange transactions made by non-resident Indians (NRIs), importers and exporters.

Every remittance made by banks on behalf of their NRI customers needs a certificate from a chartered accountant. A survey by the I-T department in Ahmedabad showed that only three banks, out of the 82 banks and branches authorised for foreign exchange business, received certificates for remittances.

Official sources said some banks were ignorant of RBI's instructions, whereas some others took the chartered accountant's certificate only for non-import payments. I-T officials said RBI had made the certification by a chartered accountant mandatory for all payments, including remittances for both import and non-import, but the compliance by banks was yet to improve.

They added that these violations led to a loss of revenue as the department was clueless about the total remittances made by banks on behalf of NRIs. Remittances should be made after deducting tax, they added.

Meanwhile, banks have asked RBI to restructure the list of wilful defaulters. Bankers said currently names of defaulters were abbreviated. Therefore, whenever a bank approached a defaulter, he filed an affidavit stating that the name did not belong not him/her.

There was no other way for banks to cross-check this as neither the full name of the defaulter nor his father's name was available. This led to confusion in the recovery proceedings of debt and the filing of cases with DRT.