Lok Sabha Question No. 2368 (UNSTARRED), answered on 2019-07-08
Subject: Regulatory Compliance by Private Banks
Ministry: FINANCE
Asked by: Suresh Kodikunnil

## GOVERNMENT  OF INDIA

## LOK SABHA

## MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL SERVICES

## UNSTARRED QUESTION NO. 2368

TO BE ANSWERED  ON THE 8 TH  JULY  2019/ ASHADHA  17, 1941 (SAKA)

## Regulatory  Compliance by Private  Banks

2368.  SHRI  KODIKUNNIL  SURESH:

Will  the Minister  of FINANCE  be pleased to state:

- (a) whether  the Government  is seized of instances  and reports  concerning  non-compliance  with  directions on  'Know   Your   Customer/Anti-Money Laundering   Norms'   and  on  reporting   of  frauds  by   private   sector lenders  and banks;
- (b) if so, the details  thereof;
- (c) whether  the Government  is aware  of widespread  deficiencies  in regulatory compliance  by  private  sector lenders;
- (d) if  so,  whether   the  Government   is  intending   to  promulgate   a  regulatory mechanism   to  check   such matters;  and
- (e) if so, the details  thereof?

## THE MINISTER  OF STATE  FOR  FINANCE (SHRI ANURAG  SINGH THAKUR)

(a)  to  (e):  Regulatory mechanism  are in place to deal with  non-compliance  with  directions  on 'Know Your Customer/Anti-Money Laundering  Norms'  (KYC/AML  norms)  and on reporting  of frauds by  lenders  and banks,  and deficiencies  in regulatory compliance  by  lenders.

Further,  as per inputs  received  from  the Department  of Revenue,  the Director,  Financial  Intelligence  Unit  India (FIU-IND),  based on inquiry  initiated  under  the Prevention  of Money  Laundering  Act,  2002 (PMLA),  is empowered  to take  suitable  actions  against  erring  entities  for non-compliance  of legal  obligations  under  PMLA. Director,   FIU-IND  has  imposed   penalty   against   10  private   sector  banks   where   non-compliance   of  the provision  of Chapter  IV of PMLA  and the Prevention  of Money  Laundering  Rules,  2005 had been reported  or detected.

In this regard,  Reserve  Bank of India (RBI) has informed  that  with  a view  to developing  a sound framework and process for enforcement  action,  a separate  Enforcement  Department  (EFD) has been established  within RBI with  effect from 3.4.2017  as a centralised  department  to speed up regulatory compliance.  RBI has further informed   that   instances   of  regulatory deficiencies,   including   non-compliance   with   KYC/AML   norms   by private  sector lenders  and banks,  are flagged in RBI's inspection  reports  and pursued  for compliance  by  RBI's supervisory   department. Some  of  the  deficiencies   and  instances   of  non-compliance   are  taken   up  for enforcement  action  (in the nature  of imposing  a monetary  penalty)  by  EFD in accordance  with  policy  framed in  this   regard   based  on, inter  alia, materiality of  the  violation. Since  the  creation   of  EFD,  monetary   penalty amounting  to Rs. 148.91 crore  has been imposed  on 43 private  lenders  and banks  for regulatory deficiencies, out of which  penalty  of Rs. 8.30 crore  has been imposed  on nine  private  lenders  and banks  for non-compliance with  directions  on KYC/AML  norms.

RBI has also issued -Master  Directions  on Frauds  -  Classification  and Reporting, -which  require  banks  to report frauds beyond  a threshold  amount  to law  enforcement  agencies,  monitoring and follow-up  of cases by  a special committee,   quarterly placement   of  information before  the  Audit   Committee of  bank   Board  concerned,   and annual   review   of  frauds  by   the  bank   concerned.   These  cover, -inter  alia, preventive   measures,   fraud   detection systems,   systemic   lacunae,   remedial   action,   monitoring of  progress   of  investigation and  recovery,   and  staff accountability.

## ANSWER