RBI slaps ICICI Bank with heavy penalty for flouting guidelines

According to the RBI, this penalty has been imposed in exercise of powers vested in the RBI under the provisions of Section 47A(1)(c) of the Banking Regulation Act, 1949, taking into account failure of the bank to adhere to the directions/ guidelines issued by the RBI.

By: ENS Economic Bureau | Mumbai | Updated: March 30, 2018 4:22:01 am
A penalty of Rs 58.9 crore on ICICI Bank for violating the central bank’s guidelines governing treasury operations. (Photo: Reuters)

In one of the heaviest monetary levies by a regulator on a bank for violation of regulations in recent years, the Reserve Bank of India (RBI) imposed a penalty of Rs 58.9 crore on ICICI Bank for violating the central bank’s guidelines governing treasury operations.

The RBI said the penalty was imposed for non-compliance with directions on direct sale of securities from its HTM (held-to-maturity) portfolio and its disclosure.

“This 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,” the RBI said in a statement. Banks have to mandatorily keep 19.5 per cent of their deposits in government securities as statutory liquidity ratio (SLR) under RBI guidelines.

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According to the RBI, this penalty has been imposed in exercise of powers vested in the RBI under provisions of Section 47A(1)(c) of the Banking Regulation Act, 1949, taking into account the failure of the bank to adhere to directions/guidelines issued by the RBI. The maximum penalty that the RBI has imposed for various violations in recent years was Rs 5 crore — Bank of Baroda was fined Rs 5 crore in 2016 for lapses in the Rs 6,000 crore forex-related illegal transactions.

Many banks, which are reeling under huge bad loans, had suffered losses recently due to the sharp rise in yields on government securities in the last one year. When bond yields rise, securities’ prices fall and banks incur losses in their securities portfolio. In fact, banks have been selling securities from their portfolio and the appetite for new securities also waned.

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RBI guidelines require banks to classify investments into three categories — Held For Trading (HFT), Available For Sale (AFS) and Held to Maturity (HTM). Securities acquired by the banks with the intention to hold them till maturity can be classified under HTM. If the value of sales of securities from HTM category exceeds 5 per cent of the HTM investments, banks are required to disclose in the audited annual financial statements, the market value of the HTM investments and indicate the excess of book value over market value.

“The RBI has imposed a penalty on the bank for continued sale of government securities classified as HTM. ICICI Bank had continued with the sales from HTM category for a few weeks during the quarter ended March 31, 2017, due to a genuine misunderstanding on the timing of the applicability of the RBI’s direction in this matter,” ICICI Bank said.

According to RBI guidelines, the bank had disclosed in its annual report for FY2017 that it had sold more than 5 per cent of investments categorised as HTM. “However, the bank had not made the specified additional disclosure at that time. The bank has subsequently been making the specified disclosure as directed by RBI in the audited financial results since the quarter ended June 30, 2017,” it said.

During the current year (FY2018), the bank has sold less than 5 per cent of securities from its HTM portfolio. In a statement, ICICI Bank said “it gives utmost importance to regulatory compliance and ensuring compliance with all directives, guidelines and observations by the RBI”.

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