RBI may reopen demat scam probe

IMPACT OF SEBI INTERIM ORDER ON DEMAT SCAM

To wait for reports of NSDL, CDSL on tainted DPs.

The Reserve Bank of India may revisit the IPO allotment scam and probe banks' share demateriailisation operations yet again. The issue came up for discussion at a meeting between the RBI and Securities and Exchange Board of India (Sebi) here today.

The capital market regulator is of the view that the penalty imposed by the RBI on banks involved in the IPO scam is "too less" compared with the magnitude of their guilt.

Earlier, in a meeting between the RBI and Parliamentary Standing Committee on Finance, it was decided that criminal action should be taken against banks involved in the scam.

The apex bank, on its part, had then referred the Bharat Overseas Bank case to the CBI. However, the RBI's decision now is to wait for the reports of National Securities Depositary Ltd (NSDL) and Central Depositary Services Ltd (CDSL), who have been directed by Sebi to submit a report on tainted DPs in a month.

Part of the investigation by the depositaries will verify whether all demat account holders are genuine and the know your customer (KYC) norms laid down by Sebi were duly complied with. Even though Sebi has reportedly been in favour of a fresh round of investigation of all banks involved in the IPO scam, the RBI feels that some banks have already been penalised and the amount is not important as the penalty carries a reputation risk.

Moreover, the RBI has also put on hold the requests of these banks for new branch licences and permission for setting up ATMs till the risk management procedures are in place.

Earlier, the RBI had penalised ING Vysya, Citibank, HDFC Bank, IDBI Bank, ICICI Bank, Standard Chartered Bank, Bharat Overseas Bank, Indian Overseas Bank and Vijaya Bank accusing them of facilitating the IPO allotment scam. The penalties ranged from Rs 5 lakh to Rs 25 lakh.

In addition to the older ones, Sebi in yesterday's interim order, has listed six new banks "� Centurion Bank, Kotak Mahindra Bank, UTI Bank, BNP Paribas, UCO bank and Kalupur Cooperative Bank "� for not adhering to customer identification and anti-money laundering norms in the functioning as a depository participant.

According to the order, Centurion Bank grossly failed in adhering to the "know your client" norms laid down by SEBI and thereby facilitated opening of demat accounts in fictitious benami names.