RBI raps banks for violating KYC norms

Two public sector banks and one private bank were held accountable by the Reserve Bank of India (RBI), Bangalore, for failure to exercise due diligence in opening bank accounts that enabled online fraudsters to hack into the accounts of genuine customers and walk away with Rs 6.60 lakh, exposing the lax implementation of know your customer (KYC) norms.

“The cases were taken up by the RBI ombudsman after the customers lodged complaints with him; the money trail was traced to Mumbai and Coimbatore; the fraudsters had opened accounts with fake employment letters, residence documents and given fictituous telephone numbers. We conducted summary proceedings and found the banks guilty, they went in for appeal to the appellate authority (Deputy Governor, RBI) who upheld two of our verdicts. The third one is yet to be decided," said RBI Karnataka banking ombudsman M Palanisamy.

He shared the details during the course of a press briefing on the complaints received by him during July 2011-June 2012. In another case, a public sector bank was asked to suspend its mobile banking services after its security systems were found to be deficient.

In all, the ombudsman received 3,486 complaints during the year compared to 3,470 last year. While most of the complaints pertained to “failure to implement committments made - 1,209 (1232 last year) - followed by those pertaining to credit and debit cards - 732 (768 last year). Other categories included levy of service charges without prior permission, loans and advances and recovery agent harassment. He also said the RBI found about 10 cases where banks had wrongly rejected applications for education loans, which were then rectified by the respective banks. He said in most cases, RBI ensures that the grievances are resolved and benefits are restored to the customers, with occasional cases of compensation to them.