Violation of RBI Regulations

The Reserve Bank of India has imposed a penalty of Rs 5 crore on Bank of Baroda (BoB) in connection with the Rs 6,100-crore foreign exchange fraud exposed last year. The RBI has also imposed penalties of Rs 2 crore on HDFC Bank and Rs 3 crore on Punjab National Bank (PNB) for violations of RBI rules.

“Further to the media reports in October 2015 about irregularities in advance import remittances in various banks, the RBI had conducted a scrutiny of the transactions carried out by HDFC Bank,” the private lender said in a regulatory filing. The RBI issued a show-cause notice to which the bank submitted its detailed response. “After considering the bank’s submissions, the RBI has imposed a penalty of Rs 2 crore on the bank on account of pendency in receipt of bills of entry relating to advance import remittances made and lapses in adhering to KYC/AML (Know your customer/anti-money laundering) guidelines in this respect,” it said.

HDFC Bank further said it has implemented a “comprehensive corrective action plan” to strengthen its internal control mechanisms “so as to ensure that such incidents do not recur”. “The RBI has imposed a penalty of Rs 5 crore on Bank of Baroda. Pursuant to the internal audit of the Bank of Baroda, the RBI and investigative agencies in October 2015 were advised by the bank of certain irregularities observed,” Bank of Baroda said in a BSE filing. “The RBI carried out the investigation and noted the deficiencies which were reflective of weaknesses and failures in internal control mechanisms in respect of certain AML provisions such as monitoring of transactions, timely reporting to FIU (Financial Intelligence Unit), and assigning of UCIC (unique customer identification code) to customers. The bank fully cooperated with the RBI during the process, leading to the conclusion of its findings,” it said.

The bank has implemented a comprehensive corrective action plan to strengthen internal controls and to ensure that such incidents do not recur, BoB said. The RBI carried out the investigation and noted the deficiencies which were reflective of weaknesses and failures in internal control mechanisms in respect of certain AML provisions. The bank further said it has implemented a corrective action plan to strengthen internal controls.

PNB also said it has taken necessary preventive measures and comprehensive action plan to avoid its recurrence. “Though the amount of penalty is not material to the size of the bank, reporting is done in terms of SEBI regulations,” PNB said. Shares of HDFC Bank closed at Rs 1,246.55 on the BSE, up 1.23 per cent. BoB shares closed 3.21 per cent up at Rs 155.75 on Monday. PNB jumped by 8.23 per cent. BoB and HDFC Bank employees were arrested by the Central Bureau of Investigation and the Enforcement Directorate in connection with the alleged forex fraud last year. What has complicated matters further was the revelation that while remittances were sent to Hong Kong and Dubai via banks, actual exports were sent to Afghanistan.