Axis Bank, HDFC Bank and ICICI Bank fined, but get off lightly

The Reserve Bank of India has imposed a penalty of Rs 5 crore on Axis Bank, Rs 4.50 crore on HDFC Bank and Rs 1 crore on ICICI Bank following its discovery that the three banks had violated certain regulations and instructions the RBI had issued.

The paltry amounts are indeed surprising. Perhaps the RBI's purpose is merely naming and shaming and no more. In a late night release, the RBI added the investigation had not revealed any prima facie evidence of money laundering by the banks.

The violations were discovered following an RBI probe which began after the website Cobrapost carried out a sting operation on these banks, which showed bankers suggesting to the undercover reporter various ways of dodging the Know Your Customer (KYC) guidelines and keeping untaxed, black money in savings accounts as well as investing it in insurance schemes.

"Any conclusive inference in this regard (to money laundering) can be drawn only by an end to end investigation of the transactions by tax and enforcement agencies," says the RBI release.

The RBI scrutinized the books of accounts, the internal controls, the compliance systems and processes of the three banks.

Among the violations the banks have been indicted for are:

(a) non-observance of certain safeguards while arranging for "at par" payment of cheques drawn by cooperative banks
(b) non-adherence to certain aspects of  the KYC norms and anti money laundering guidelines
(c) non-adherence to KYC for walk-in customers, including those who came to buy or sell third party products
(d) cash transaction reports (CTRs) not being filled in for certain transactions
(e) sale of gold coins of value beyond Rs. 50,000.

It also found that staffers were also not demanding the  permanent account numbers or Form 60/61 as required. They were also not verifying the  source of funds credited to a few non-resident ordinary (NRO) accounts,

The RBI has added that similar scrutiny was carried at the corporate offices of 36 other banks as well during April and May 2013. "The process of follow up action in respect of these banks is at different stages of completion," says the RBI release.