In an effort to tighten regulatory oversight on foreign banks operating in India, the Reserve Bank of India on Wednesday said chief executive officers (CEOs) of such banks would be responsible for ensuring regulatory and statutory compliance for their operations.
RBI said foreign banks operating in India as branches of their parent banks generally do not have separate audit committees responsible for examining and reviewing inspection and audit reports for their compliance.
Most foreign banks in India operate on the ‘line functioning’ system. This means a department head of the bank in India reports directly to the global or regional head. “Business heads/units were reporting directly and being answerable to their 'functional heads' overseas, not to the CEO of Indian operations,” RBI said, adding the practice raised concerns about regulatory compliance. “It has been decided that for all foreign banks operating in India, the CEO would be responsible for effective oversight of regulatory and statutory compliance, as also the audit process and its compliance for all operations in India,” RBI said.
RBI officials said the step was aimed at increasing oversight on various activities. The move follows suggestions of the Board for Financial Supervision, which seeks to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.
The notification comes amid reports of fraud in branches of leading foreign lenders like Citibank and Standard Chartered Bank. As many as 34 foreign banks. including global leaders like HSBC and Deutsche Bank, operate in India. Citibank had, in December, discovered a fraud, allegedly committed by its employee Shivraj Puri, who siphoned off Rs 400 crore by selling financial products that were not authorised by the bank.
RBI had recently penalised 19 commercial banks for mis-selling derivative products to clients.
