The RBI recently imposed a penalty of Rs. 27 crore on 13 banks for violating KYC (Know Your Customer) guidelines and non-adherence of anti-money laundering norms. Various irregularities such as non-submission and inordinate delays in filing Suspicious Transaction Reports (STRs), besides opening of accounts by several entities without complying with KYC norms, were noticed by RBI.
The apex bank also found that “fraudsters had encashed cheques and drafts of which they were not the rightful owners”. The banks in question obviously had opened accounts for these fraudsters, clearly exposing their negligence and inefficiency, if not other motives. Such breaches are not acceptable in an age of advanced technology, where the system itself can prevent or display non-compliance, by raising a few queries.
On paper, RBI appears having done its job. Can it remain complacent by just levying the fine, which is pittance for banks? It would be a comic scene, were it is not tragic. What does it mean by imposing penalty? Most of these banks named are government-owned institutions. Effectively, the penalty gets moved from one corner of the government to another. Even if any of them goes bankrupt, the Centre will bail them out!
What is the heavenly purpose in penalising banks? A bank is, after all, an inanimate entity and it cannot commit a crime by itself. If the bank is penalised, the penalty befalls the shareholders in case of private banks, and on the shareholders and tax-payers in the case of PSU banks. Recently, the Government of India infused about Rs.23,000 cr. to capitalise PSU banks. The respective banks may even use some of these funds to pay the fine. Who knows! And whose money is it anyway!
Bankers violate gleefully and banks pay penalty dutifully. Natural justice demands that the erring management officials should be penalised, instead. Their salaries must be docked and promotions denied, without detriment to any other disciplinary action that may deem fit to be taken. A separate watchdog besides RBI should be set up. Is the so-called vigilance arm is sleeping? RBI and banks should expose the names of those officials who facilitated tainted deals. Sadly, we have learnt to live with frauds and mediocrities.
If this violation is rampant, what the RBI has been doing all these days? How various audits in banks failed to notice such blotted transactions? RBI is doing yearly audit of all banks, why this was not noticed by them for long? This raises a serious question on its supervisory role. Even the watchdog has to be reprimanded. If banks are concerned with KYC, it’s time for the bank customers to know the KYB (Know Your Bank), as well.
In the name of financial inclusion, some of these banks, of late, added thousands of accounts situated in the remote areas of the country, without fully focussing on the Operating Procedures (OP). While this type of imposition of penalty on banks has become numb, they would, as a matter of routine, pay such penalty, and perhaps continue violations.
(The views expressed by the author in the article are his/her own.)