The Reserve Bank of India will issue showcause notices to banks which transgressed Know Your Customer (KYC) guidelines.
This move comes after three private sector banks — ICICI Bank, HDFC Bank and Axis Bank — employees were allegedly caught in a sting operation by online magazine cobrapost.com offering to convert tax evaded money into legitimate money.
“First we will show the audit report to all the banks and ask them to explain. If we feel that their explanation is unsatisfactory, we will issue a show-cause notice and based on that we will take some action,” K.C. Chakrabarty, Deputy Governor, RBI, said.
Referring to the cobrapost allegations, RBI Governor D.Subbarao said that transgression of KYC norms does not mean money laundering has taken place.
“As soon as that (cobrapost allegations) came to light, we started special investigation and supervision against these specific banks as well as (undertook) thematic study of 30 other banks.
“A number of specific transgressions of norms have come to light. We don’t believe that there has been any money laundering; however there have been transgressions of some KYC norms,” Subbarao said.
The Governor said that the central bank has spoke to the chiefs of these banks and told them about the deficiencies. Subsequently, the bank officials went back and implemented some of those systemic improvements.
Based on the thematic study, Subbarao said that the central bank will issue guidelines about what banks need to do to adhere to KYC norms.
SBI Chairman Pratip Chaudhuri said RBI officials should conduct surprise check at branches to gauge KYC implementation.