RBI to reveal penalties against banks

Mumbai: The Reserve Bank of India (RBI) has decided to disclose the details of penalty and other actions taken by it against banks.

The new directive, which comes into effect from November 1, also asks banks to disclose details of such penalties in the 'Notes on Accounts' to the balance sheets in their annual reports.

Though RBI often levies penalties based on inspection reports on banks, this information is not always published. Recently, the central bank slapped a fine of Rs5 lakh on Citibank for flouting 'know-your-customer' norms. In a circular issued to commercial banks, RBI said it would issue press releases giving details of the circumstances under which the penalty was imposed on a bank.

It would also give details regarding the strictures or directions issued to the banks on the basis of their inspection reports.

In the case of foreign banks, the penalty has to be disclosed in the `notes on accounts' to the next balance sheet for their Indian operations.

Currently, the RBI is empowered to impose penalty on a commercial bank under the provisions of the Banking Regulation Act for contravention of any provision or non-compliance with any requirements of the Act.

The imposition of the penalty on a bank is decided after a due process of advising the bank and seeking its explanation to give the bank a reasonable opportunity to be heard, RBI said in a release.

In its circular to the banks, RBI said it is noteworthy that the "third pillar of the Basel II addresses how safety and soundness in the banking system can be strengthened by market discipline through enhanced transparency in bank's disclosures to the public."

It is also internationally recognised that while transparency strengthens market discipline, banks may not be able to disclose all data that may be relevant to assess their risk profile, due to the inherent need to preserve confidentiality in relation to its customers.