Lapses in adherence to the know-your-customer guidelines and sales staff encouraging customers to buy gold, mutual fund and insurance products in cash are believed to be among the findings of a central bank scrutiny of India’s top three private sector banks.

Based on the findings of the scrutiny, which covered the head-office and branches of ICICI Bank, HDFC Bank and Axis Bank, the central bank may penalise these banks.

Following its findings, the RBI, at the systemic level, is likely to tighten know-your-customer (KYC) guidelines and put in place norms to curb sales-driven incentives to bank sales staff to push third-party products.

Besides lacunae in adherence to KYC norms, authentication of permanent account number details in cash transactions were unsatisfactory, said a senior central bank official.

Further, the central bank has flagged the issue of drafts for large sums issued by co-operative banks being accepted by bigger banks without carrying out the usual KYC-PAN authentication. The view is that a bank cannot depend on the verification of documents done by other banks.

The RBI initiated comprehensive scrutiny of the three private sector banks, covering both their head-office and branches, after an online media firm, on the basis of its sting operations across some branches of these banks, alleged that branch officials were offering products to convert unaccounted money into legitimate money.

The media firm, which alleged violation of several provisions of the Reserve Bank of India Regulations, Foreign Exchange Management Act, etc, had uploaded some videos on the Internet relating to the three private sector banks as well as ICICI Prudential Life Insurance and HDFC Life Insurance.

Apart from the scrutiny, the Reserve Bank had also undertaken a thematic study in respect of banks that are active in selling gold coins/wealth management products to examine whether there are systemic issues and to plug deficiencies and legal loopholes, if any.

Meanwhile, the central bank is taking stock of the KYC implementation across the banking system, including the public sector banks. The RBI wants banks to eliminate multiple accounts held by customers in a bank by giving them unique customer identification number.

(This article was published on April 5, 2013)
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