RBI has imposed penalties on two banks for not following proper Know Your Customer (KYC) guidelines. RBI
want to enforce strict regulatory rules in the banking industry, so if required further actions will be taken against the banks. The KYC violation was found during the bank’s Statutory Inspection for Supervisory Evaluation (ISE 2023). HDFC Bank is fined Rs 75 lakh, and Punjab & Sind Bank is fined Rs 68.20 lakh for not following certain rules.
Rules violated by banks:
– As per the rule, banks need to properly categorize customers into low, medium, and high-risk groups based on their risk labels but HDFC bank failed to do so. Secondly instead of maintaining one Unique Customer Identification Code (UCIC) for each client, HDFC Bank gave multiple IDs to some customers.
– As per RBI guidelines, banks need to report credit information to the Central Repository of Information on Large Credits (CRILC) about their borrowers who takes loan of Rs 5 crore and above but Punjab & Sind Bank failed to do so. Some customers with Basic Saving Bank Deposit Accounts (BSBDA) were permitted to open regular Saving Bank Deposit accounts, which is against RBI norms.
RBI said that the fine is imposed specifically for regulatory non-compliance and it does not affect the validity of transactions and agreements between the banks and their customers. The penalty was imoosed under the Banking Regulation Act, 1949.
Explanation of abbreviations used here:
What is Statutory Inspection for Supervisory Evaluation (ISE)?
Statutory Inspection for Supervisory Evaluation (ISE) is an inspection process of RBI that is mandatary to evaluate the financial and operational health of banks including regulatory compliance and to make sure that the banks are following RBI guidelines properly.
What is Central Repository of Information on Large Credits (CRILC)?
Central Repository of Information on Large Credits (CRILC) is estabilished by RBI to collect and keep track of credit information about borrowers who have loan of RS 5 crore or above. The aim of CRILC is to help banks and other financial institutions to manage their risks and to detect financial problems of these borrowers at an early stage.
What is Basic Saving Bank Deposit Accounts (BSBDA)?
Basic Saving Bank Deposit Accounts (BSBDA) is basic saving account in which no minimum balance is maintained. It allows people to do basic banking transactions free of cost. It also provides ATM-cum-debit card with zero annual maintenance charges. The aim of (BSBDA) is to help more people to have access to basic banking services and encourage financial inclusion.