‘Hiking penalties not the only solution for KYC violation’

In the backdrop of talk on hiking the penalty for alleged violation of Know Your Customer guidelines by banks, K. C. Chakrabarty, Deputy Governor of Reserve Bank of India, said that just increasing the penalty amount is not the only solution.

Reserve Bank Governor D Subbarao recently said that the penalties for such offences in India amounted to ‘peanuts’ compared to those in the western countries. Financial Services Secretary Rajiv Takru also recently said that the penalty amount was too less and there is an active discussion on increasing the penalty.

“It is one crore per incident. We must also understand – we cannot use fines indiscriminately. If I start fining, ultimately, banks are profit making organisations; they will pass it to the customer. And then again you will come back to me saying their charges have gone up, they are charging higher rate of interest. Fine is only for naming and shaming, we cannot create a system where we say that people will violate the regulation and by paying the fine, it is ok.”