HDFC Bank has to pay a penalty of ₹1 crore for failure to comply with RBI directives on conducting KYC (know your customer) on their customers. This particular violation refers to 39 current accounts opened by customers in HDFC Bank. The purpose of opening these accounts was to bid for an Initial Public Offer (IPO). RBI says HDFC Bank failed to exercise due diligence in the case of these 39 accounts. It has turned out that the persons behind these accounts had declared income much lower in proportion to the amounts being transacted through these accounts.
RBI followed due procedure in the matter by issuing a show-cause notice to HDFC Bank and asking the bank why they should not be penalised for this lapse on their part.
HDFC Bank responded with a detailed explanation. However, RBI found that the explanation given by the bank was not satisfactory and went ahead and imposed a fine of ₹1 crore. The bank was allowed to send its representative to make oral submissions as well, before pronouncing the verdict.
There is always the caveat added to such pronouncements. RBI clarifies that finding HDFC Bank non-compliant in this particular case does not mean that the transactions held in those accounts are not valid. Any agreement or understanding the bank would have entered into with the 39 current account holders remains unaffected as well.
These fines are imposed to ensure that banks do not take the KYC compliance lightly. Where mistakes can occur at the branch levels, the bank management has to pull up the erring executives and create sufficient awareness of the norms instituted by the banking regulator. The overall objective is to stop money laundering activities and to detect black sheep.