RBI imposes monetary penalty on Citibank, BoB and IOB

The Reserve Bank of India (RBI) has imposed a monetary penalty aggregating ₹10.34 crore on three banks —Citibank NA (₹5 crore), Bank of Baroda (₹4.34 crore) and Indian Overseas Bank (₹1 crore) —for non-compliance with some of its Directions.

RBI said the examination of Citibank’s Risk Assessment report/Inspection report about Statutory Inspection for Supervisory Evaluation (ISE 2021) and all related correspondence in that regard, revealed, inter alia, contravention of the provisions of the BR Act and non-compliance with its directions on ‘Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks read with Know Your Customer (KYC) Direction, 2016’.

The central bank, in a statement, said Citibank (i) failed to credit the eligible amount to the Depositor Education and Awareness Fund within the prescribed period, (ii) paid remuneration in the form of commission to its certain staff members and (iii) outsourced monitoring and disposal/closure (decision-making function) of AML (Anti-Money Laundering) alerts to a Group company.

Consequently, a notice was issued to the bank advising it to show cause as to why a penalty should not be imposed on it for failure to comply with the said directions, as stated therein.

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“After considering the bank’s reply to the notice, additional information provided by the bank and the oral submissions made during the personal hearing, RBI came to the conclusion that the aforesaid charge of contravention of the provisions of the BR Act and non-compliance with RBI directions was substantiated and warranted imposition of monetary penalty,” RBI said.

Bank of Baroda

RBI said examination of BoB’s Risk Assessment Report/Inspection Report pertaining to ISE 2021, and all related correspondence in that regard, revealed, inter alia, non-compliance with its Directions on ‘Creation of a Central Repository of Large Common Exposures Across Banks’, ‘Central Repository of Information on Large Credits (CRILC) – Revision in Reporting’, ‘Loans and Advances – Statutory and Other Restrictions’, and ‘Reserve Bank of India (Interest Rate on Deposits) Directions‘.

The central bank, in a statement, said BoB failed to ensure accuracy and integrity of data on large exposures submitted to RBI with respect to some accounts; sanctioned a term loan to a Corporation (a) in lieu of or to substitute budgetary resources envisaged for certain projects; (b) without undertaking due diligence on the viability and bankability of the projects to ensure that revenue streams from the projects were sufficient to take care of the debt servicing obligations; and (c) the repayment / servicing of which was made out of budgetary resources.

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Further, RBI said, the public sector bank sanctioned a working capital demand loan to a Corporation against amounts receivable from government by way of subsidies, and did not pay interest rate on the deposits accepted from senior citizens, as per the schedule of interest rates disclosed in advance.

Consequently, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for failure to comply with the said directions, as stated therein.

“After considering the bank’s reply to the notice, and oral submissions made during the personal hearing, RBI came to the conclusion that the charge of non-compliance with the aforesaid RBI directions was substantiated and warranted imposition of monetary penalty,” RBI said.

Indian Overseas Bank

RBI said examination of IOB’s Risk Assessment Report/Inspection Report about ISE 2022, and all related correspondence in that regard, revealed, inter alia, non-compliance with its Directions on ‘Loans and Advances – Statutory and Other Restrictions’

The central bank said IOB sanctioned term loans to two Corporate entities (i) instead of or to substitute budgetary resources envisaged for certain projects; (ii) without undertaking due diligence on the viability and bankability of the projects to ensure that revenue streams from the projects were sufficient to take care of the debt servicing obligations; and (iii) the repayment/servicing of which was made out of budgetary resources.

Further, the public sector bank sanctioned a term loan to another Corporate entity (i) without undertaking due diligence on the viability and bankability of the projects to ensure that revenue streams from the projects were sufficient to take care of the debt servicing obligations and (ii) the repayment/servicing of which was made out of budgetary resources.

Consequently, a notice was issued to the bank advising it to show cause as to why a penalty should not be imposed on it for failure to comply with the said directions, as stated therein.

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“After considering the bank’s reply to the notice, and oral submissions made during the personal hearing, RBI came to the conclusion that the charge of non-compliance with the aforesaid RBI directions was substantiated and warranted imposition of monetary penalty,” RBI said.

In all three cases, RBI said its action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

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