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

The Reserve Bank of India on Friday said it is still continuing with probes against three top private sector banks — ICICI Bank, HDFC Bank and Axis Bank, that are accused of alleged money laundering, and said it is yet to clear them of the charges.

"No, we have not. And we are saying that we are (going) to issue show-cause notices. So, the inquiry is still in progress," said RBI Governor D Subbarao.

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.

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