RBI not to relent on scam penalty

IPO scam-tainted banks cannot expand for 3 years.

The Reserve Bank of India (RBI) is likely to continue with the ban on branch expansion of banks tainted in the IPO allotment scam for three years.

The banks penalised earlier this year for violating know-your-customer norms during the IPO scam are ICICI Bank, HDFC Bank, Citibank, Standard Chartered Bank, Industrial Development Bank of India (IDBI), ING Vysya Bank, Vijaya Bank, Indian Overseas Bank (IOB), and Bharat Overseas Bank (being merged with Indian Overseas Bank).

Since the RBI imposed the penalty, none of these banks has been allowed to open new branches.

Some of the banks have made representations to the finance ministry, which is understood to have asked the RBI to review its decision a year from the date of imposition of the penalty.

Sources said the involvement of these banks in the IPO scam and the subsequent penalty imposed on them might also affect their chances of acquiring any bank.

"Even if the RBI changes its stance later, the branch expansion plans of these banks will go through stringent scrutiny by the central bank for three years," they said.

The regulator's decision has scuppered the expansion plans of these banks, some of which had taken over new premises, employed staff, and bought computers.

The banks were penalised for failing to adhere to established norms for granting loans against shares, and for initial public offers. The penalties ranged from Rs 5 lakh to Rs 25 lakh.

Incidentally, three of the banks "" ICICI Bank, Standard Chartered Bank and IDBI Bank "" have formally shown interest in acquiring the Satara-based United Western Bank, which was put under a moratorium on September 2 for failure to infuse capital and resurrect its financials.

Earlier, IOB was allowed to take over Bharat Overseas Bank. However, IOB's case was special given that it was one of the original shareholders of Bharat Overseas Bank.