Mumbai: Reserve Bank of India (RBI) deputy governor M.K. Jain Tuesday said that the compliance culture of Indian banks is unsatisfactory.
The central bank has observed various gaps in compliance, Jain said on the sidelines of a banking summit organized by the Federation of Indian Chambers of Commerce and Industry (Ficci) and the Indian Banks’ Association (IBA).
“Subsequent to the financial crisis, the focus on compliance has gone up significantly, especially in the area of KYC (know your customer), suitability and appropriateness of banking products offered to specific customers. In this context, despite benefits offered by good compliance culture and cost of poor conduct, the compliance culture of Indian banks is far from satisfactory. During the supervising process, RBI has observed lacunae in the compliance culture of Indian banks. Some of the weaknesses and irregularities observed have been recurring in spite of the commitments by RBI,” said Jain.
Jain is the deputy governor in charge of banking and non-banking supervision.
RBI has imposed monetary penalties on 70 occasions totalling ₹122.9 crore from January to July this year, he said.
Jain’s comments assume significance with several frauds having jolted the banking system. These include the $2 billion fraud at Punjab National Bank where lapses in risk control and monitoring led to fraudulent transactions taking place over several years.
RBI, in its recent financial stability report, had also noted that 90.6% of the frauds reported by banks in fiscal year 2018-19 occurred between 2000 to 2018. Data suggests that nearly 40% of the under-reported frauds actually took place between 2013 and 2016.