RBI continuing with probe on ICICI Bank,HDFC Bank,Axis Bank on loopholes in KYC diligence

The central bank also plans to issue draft guidelines on wealth management services and know- your- customer KYC norms by June-end in order to improve regulatory compliance by banks.

Though money laundering,which involves use of criminal money,was not observed in any of the banks,the RBI Governor said that specific transgressions on the KYC norms were discovered.

We have talked to those banks,called those CEOs for a meeting,told them about what the deficiencies are and they have gone back and implemented some of the systemic improvements, Subbarao said,adding RBI officials have also spoken with forensic auditors appointed by these banks.

The central bank also discussed the issue in its Annual Monetary Policy statement and said,The RBI undertook investigations in the light of reported allegations that certain banks were involved in aiding tax evasion and fraudulent transfer of funds. The investigations revealed the need for better regulatory compliance by banks.

While it did not name the banks,the RBI said it was found that in some cases,banks were not carrying out due diligence of customers while marketing and distributing third party products as agents.

Some banks are also not filing Cash Transaction Reports CTRs or Suspicious Transaction Reports STRs in such cases,wherever required, RBI said. Accordingly,it has directed banks to follow due diligence of customers as well as maintain details of all third party products sold. Further,to ensure that there is no mis-selling or distortion of staff incentive structure during sale of third party products like mutual funds and insurance,the RBI has also advised banks to segregate marketing function from the transactional process.

8230; may impose penalties on 3 banks

The RBI could consider imposing penalties against ICICI Bank,HDFC Bank and Axis Bank that are accused of alleged money laundering.

It is the RBIs decision,but it could impose penalties against the three banks as there have been violations of some sort, said a senior government official on conditions of anonymity.

The RBI is understood to have written to the three banks pointing out structural and administrative changes that they have to undertake to avoid such instances in further.