Stiffer penalty likely for banks flouting know-your-customer norms

The Government and the Reserve Bank of India are contemplating amending the law relating to know-your-customer (KYC) guidelines so that steeper penalty can be imposed on banks violating the same.

The proposal to increase penalty for KYC violations comes in the backdrop of an online investigative magazine, cobrapost.com, capturing on camera executives of several banks, including ICICI Bank, HDFC Bank, Axis Bank and State Bank of India, offering tips to customers to convert tax-evaded money into legitimate money using various instruments such as insurance and gold coins.

According to media reports, Reserve Bank of India probe has found that there were several violations of norms, including accepting deposits of Rs 50,000 and above without PAN. The apex bank also found that banks have indulged in blatant non-compliance of KYC norms.

‘Very less’

Rajiv Takru, Financial Services Secretary, on Thursday said, “We discussed with the RBI board that the penalty amount is probably less. The maximum penalty under the law is Rs 1 crore. Now that is very less. There is active discussion on increasing the limit of penalty. So that is something which is under consideration.”

He, however, did not specify the quantum by which the penalty can be increased.

“The RBI has issued show-cause notices to the banks involved in KYC violations. They are waiting for the reply now. This is the final stage before any action is taken,” said Takru.

Once the banks reply to the show-cause notice, then the RBI will weigh its options as to the action that needs to be taken.

“We should wait for the banks’ reply to the show-cause notice. So, I don't think you should take any statements given by anyone as the final word in this case,” Takru said clarifying on the issue of different voices coming from the RBI brass and its report.

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