The Reserve Bank of India (RBI), in one of its recent orders, imposed a monetary penalty of 1 crore on HDFC Bank Limited for non-compliance with Master Direction on Know Your Customer on 25 February 2016 (updated as on December 08, 2016) (Direction).
The penalty has been levied as part of an exercise of powers vested in RBI under the provisions of section 47 A (1) (c) read with section 46 (4) (i) of the Banking Regulation Act, 1949, considering the failure of the bank to adhere to the aforesaid direction issued by RBI. This action is based on the deficiencies in regulatory compliance and RBI doesn’t intend to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.
Based on the observations made during the on-site Inspection for Supervisory Evaluation of HDFC Bank Ltd undertaken by RBI for the financial year ended 31 March 2017, a scrutiny of 39 current accounts opened by its customers for bidding in Initial Public Offer was conducted by RBI which revealed, inter alia, that the bank had failed to exercise ongoing due diligence in those accounts. RBI observed that the transactions effected in these current accounts were disproportionate to the declared income and profile of the customers.
Apropos to this, a notice was issued to the bank to show cause as to why penalty should not be imposed for non-compliance with the direction. Taking into account of the reply received from the bank and oral submissions made in the personal hearing, RBI reached at the conclusion that the aforesaid charge of non-compliance with the direction was sustained and warranted levying of monetary penalty.
About Master Direction – Know Your Customer (KYC) Direction, 2016
In terms of the provisions of Prevention of Money-Laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005, Regulated Entities (REs) are prerequisites to follow certain customer identification procedure while undertaking a transaction either by setting up an account-based relationship or otherwise and monitor their transactions. Likewise, in exercise of the powers conferred by Sections 35 A of the Banking Regulation Act, 1949 and the Banking Regulation Act (AACS), 1949, read with Section 56 of the Act ibid and Rule 9(14) of Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 the Reserve Bank of India being satisfied that it is necessary and expedient in the public interest to do so, hereby, issues the Directions hereinafter specified.