RBI Action on ICICI and Kotak Mahindra Bank: On one hand, the Reserve Bank has imposed a huge financial penalty on private sector ICICI and Kotak Mahindra for violation of regulatory rules. On the other hand, new instructions have also been given to banks regarding KYC. It is being told that the Reserve Bank of India (RBI) has imposed a fine of Rs 12.19 crore on private sector ICICI Bank and Rs 3.95 crore on Kotak Mahindra Bank for violation of some regulatory rules. RBI said that it has imposed this penalty on ICICI Bank for violation of restrictions related to loans and advances and standards related to fraud classification and reporting by banks. At the same time, the Reserve Bank said in another statement that the penalty has been imposed on Kotak Mahindra Bank for not following the instructions related to risk management and code of conduct in outsourcing of financial services. This action is also related to the deficiencies in the recovery agent nominated by the bank, customer service and loan and advance provisions. According to RBI, the step of imposing penalty in both the cases has been taken on the lapses in compliance of regulatory provisions by the banks and the purpose behind this is not to pass any judgment on the validity of any transaction or the agreement of the bank with the customers.
These instructions were given on KYC
The Reserve Bank of India has taken initiative to further strengthen the customer verification system. Under this, banks and non-banking financial companies have been asked to adopt a risk-based approach regarding KYC (Know Your Customer) updates from time to time. After review, the Central Bank has amended the master guidelines regarding KYC. Under this, banks, non-banking financial companies (NBFCs) and other entities under the purview of RBI will have to conduct due diligence of their customers as per the prescribed procedures. It is noteworthy that this amendment of RBI has come after the government’s new instructions related to Anti-Money Laundering Rules, Unlawful Activities (Prevention) Act (UAPA) and Weapons of Mass Destruction and their Delivery System (Prohibition of Unlawful Activities) Act. The Reserve Bank said that it has also updated some instructions in line with the recommendations of FATF (Financial Action Task Force).
Amendment made in master instructions regarding KYC
The latest Master Instructions state that the risk-based approach for periodic updation of KYC has been revised. Under this, entities coming under the regulation of the Central Bank will have to adopt a risk-based approach for periodic updating of KYC. To ensure that information collected as part of customer investigations is retained, especially where the risk is high.