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The Reserve Bank of India (RBI) has slapped a penalty of Rs 1.5 crore each on three public sector banks - Bank of Maharashtra, Dena Bank and Oriental Bank of Commerce - for violating rules for Know Your Customer (KYC) and Anti Money Laundering (AML).
RBI also asked eight other public sector banks - Bank of India, Punjab National Bank, State Bank of Bikaner & Jaipur, Union Bank of India, Central Bank of India, UCO Bank, Vijaya Bank and Punjab & Sindh Bank - to ensure strict compliance with KYC rules.
In a statement, RBI said it began scrutiny of fixed accounts opened in Mumbai-based branches of certain public sector banks in July 2014 following a complaint by a private organisation. Later, it expanded the ambit of the review to cover 12 branches of 11 public sector banks with more complaints coming in and involvement of other banks was known.
The findings showed violation of regulatory norms. Three banks failed to take timely remedial steps and aggravated the seriousness of the contraventions and its impact, RBI said.
The early scrutiny and review covered the modus operandi of the alleged frauds involving the accounts of certain organisations in these banks. The probe dealt with deficiencies / irregularities in opening fixed deposits and extending overdraft facilities. It also examined implementation of KYC norms / AML standards for these accounts.
Banks failed to adhere to KYC rules for customer identification, acceptance, and monitoring transactions. Banks also breached RBI's instructions on funds received through real-time gross settlement system, RBI said.
Instances of banks opening fixed deposit accounts and granting overdrafts without due diligence were also detected. The probe showed middlemen/intermediaries were involved in opening accounts and subsequent operations. There were weaknesses in the internal control systems, management oversight and use of internal accounts for parking customer funds, RBI said.
Earlier in December 2014, the banking regulator had imposed a penalty of Rs 50 lakh on ICICI Bank and Rs 25 lakh on Bank of Baroda for violation of KYC norms after they allowed the opening of accounts in the name of a statutory body by fraudsters.
The Reserve Bank also cautioned SBI, Axis Bank and State Bank of Patiala in the same case. Similarly, in June 2014, RBI fined 12 banks, including ICICI Bank, Axis Bank, Canara Bank and Corporation Bank - a total of Rs 1.5 crore in relation to the Deccan Chronicle Holdings Ltd (DCHL) loan default case.
