IPO scam: RBI no for banks' new businesses

In a further crackdown on banks that have already been penalised for violation of customer identification norms, the Reserve Bank of India has decided to "indefinitely" put on hold all applications from these banks seeking clearance for various businesses, including opening of new branches.

The banks concerned had been informed of the decision informally by the regulator, banking sources said.

The various plans put on hold by the central bank include setting up international branches, establishing corresponding banking relations for starting new ventures with other banks and opening new bank branches for expansion of business.

The RBI has penalised a string of banks for violation of know-your-customer norms. The list includes HDFC Bank, ICICI Bank, Citibank, Standard Chartered Bank, Industrial Development Bank of India (IDBI), ING Vysya Bank, Vijaya Bank, Indian Overseas Bank and Bharat Overseas Bank (which is being merged with Indian Overseas Bank).

These banks had failed to adhere to the established norms for granting loans against shares and for funding purchase of shares in initial public offerings. The penalties ranged from Rs 500,000 to Rs 25 lakh (Rs 2.5 million).

The irregularities were established by the RBI during inspections on a reference made by the Securities and Exchange Board of India. State Bank of Indore was earlier penalised for violations in some cash transactions in 2005.

Besides imposing penalties, the regulator has put under scrutiny the internal control systems and concurrent audit systems of these banks so that the banks clean up their acts before expanding their businesses.

According to RBI rules, 50 per cent of a bank's business requires to be covered by concurrent auditors. For most of the banks, it is reported that less than 10 per cent of the total branch network can cover 50 per cent of the business.

Most of these banks were fined for opening several dematerialised accounts with common names, which were used for manipulation of the IPO allotment process.

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