Six months after a Rs 400-crore fraud was detected in its Gurgaon branch, the Reserve Bank of India (RBI) on Monday rapped Citibank for the episode.
RBI slapped a fine of Rs 25 lakh on the bank for breaching various guidelines and instructions related to know-your-customer (KYC) and anti-money laundering guidelines. Though the amount is insignificant for the bank, the move is important since it shows regulatory disapproval of the bank’s risk management and internal control systems.
A Citibank spokesperson declined to comment on the issue.
In December 2010, Citibank said it had discovered a fraud at its Gurgaon branch, allegedly committed by one of its employees, Shivraj Puri, who siphoning off Rs 400 crore by selling financial products not authorised by the bank. Puri was believed to have transferred the funds to his personal accounts. He had reportedly forged the bank’s documents and letter heads to sell the products.
In April, RBI penalised 19 commercial banks, including the country's largest lender, State Bank of India, for mis-selling derivative products to clients. However, the sum of the fine slapped on these banks was Rs 5-15 lakh. The fines were imposed since they had not complied with its instructions on derivative products. The list included seven private banks and 11 foreign banks.
In 2010, RBI imposed a penalty of Rs 5 lakh on private sector lender ICICI Bank for violating KYC norms, and a similar amount on Standard Chartered Bank for not providing information about its foreign currency loan facility on time. In 2006, in the benami demat account scam, the penalty imposed on banks ranged from Rs 5 lakh to Rs 25 lakh.
The central bank had earlier issued a showcause notice to Citibank in April for the fraud at its Gurgaon branch. It is believed the banking regulator, in the notice, said the bank could be fined as much as Rs 50 lakh if it failed to provide a satisfactory response, following which the bank had given a written response on May 6.
“After considering the facts of the case, the bank's reply and the oral submissions made during the personal hearings on June 7, the Reserve Bank of India came to the conclusion that the violations were substantiated and warranted imposition of the penalty,” RBI said in a statement.
Citibank said it informed RBI and investigating agencies as soon as it knew about the financial discrepancies at its Gurgaon branch. Currently, it is in the process of compensating clients who were affected by the scam.
