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RBI fines 13 Banks for breaching FEMA regulations and KYC lapses

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Reserve Bank of India has imposed a whooping penalty of 27 crores on 13 private and public sectors banks including PNB and Bank of Baroda following a major crackdown of FEMA regulations and KYC lapses.

What are FEMA regulations?

  1. The Foreign Exchange Management Act, 1999 (FEMA) is an Indian Parliament Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
  2. It was passed in the Parliament in 1999, replacing the Foreign Exchange Regulation Act(FERA).RBI stretched out SAARC Swap Arrangement

This act extends to the whole of India and makes offences related to foreign exchange civil offenses.

  • It enabled a new foreign exchange management regime consistent with the emerging framework of the World Trade Organisation (WTO).
  • It also paved the way for the introduction of the Prevention of Money Laundering Act, 2002, which came into effect from 1 July 2005.

What is KYC?

  • Know your customer(KYC) is the process of a business verifying the identity of its clients. The term is also used to refer to the bank regulation which governs these activities.
  • Know your customer processes are also employed by companies of all sizes for the purpose of ensuring their proposed agents, consultants, or distributors are anti-bribery
  • Banks, insurers and export creditors are increasingly demanding that customers provide detailed anti-corruptiondue diligence information, to verify their probity and integrity.
  • Know your customer policies are becoming much more important globally to prevent identity theft, financial fraud, money laundering and terrorist financing.

Fine Imposition:-

RBI started an inspection of banks after Rs 6,100-crore import remittances were effected by Bank of Baroda’s New Delhi branch. On the basis of inputs received from a public sector bank, RBI had undertaken a scrutiny on advance import remittances in 21 banks in October and November last year. The scrutiny examined the alleged irregularities in opening and monitoring of accounts including violations under FEMA provisions.

While RBI did not impose any fine on SBI, ICICI Bank, Axis Bank, Kotak Mahindra Bank and Union Bank of India; instead advised these banks to ensure strict compliance of KYC (know your customer) requirements and FEMA provisions on an ongoing basis. The fine amounts are as follows:-

Bank Name Fine Amount( In Crores)
Bank of Baroda 5
Punjab National Bank` 3
Syndicate Bank 3
UCO Bank 2
HDFC Bank 2
Allahabad Bank 2
Canara Bank 2
IndusInd Bank 2
SBBJ 2
Bank of India 1
Corporation Bank 1
RBL Bank 1
SBM Bank 1