The recent action to uphold compliance with regulations involves the Reserve Bank of India (RBI), which has imposed a fine of ₹36 lakh each against IDBI Bank and Citibank NA for violating provisions under the Foreign Exchange Management Act (FEMA), 1999, as applicable to the banks. This step is part of the commitment from the bank to ensure strict compliance with the financial regulations; however, the punishments are not a conclusion on the validity of any transactions or agreements between banks and their customers.
Why Many Levy Charges on IDBI Bank?
The RBI imposed a fine of ₹36.3 lakh against IDBI Bank under section 10(4) of FEMA, 1999. These inward remittances were found by the bank that from June 2016 till January 2023, it had failed to carry out due diligence in processing 363 remittances. Based on this, foreign exchange transactions had been done by the bank under the regulations, leading to a breach.
The penalty was accepted by IDBI Bank in a statement to the stock exchanges but assured the stakeholders that this penalty would not affect financial performance, operations, or customer service. The bank had received a show-cause notice, to which it responded in writing and also through a personal hearing on oral representations. Based on the thorough review of the matter, the RBI action has been taken against the bank as the review and submission established that the violations were valid.
What was the Reason behind Citibank’s Penalty?
Citibank NA was also imposed a penalty of ₹36.28 lakh for non-compliance with the guidelines of RBI under the Liberalized Remittance Scheme (LRS). This did not involve the proper reporting of transactions under the scheme allowing Indian residents to remit money abroad for permissible purposes. Citibank, like IDBI Bank, was served with a show-cause notice and allowed to make written and oral representations. Nevertheless, the RBI upheld the violations, and consequently, slapped the penalty under Section 11(3) of FEMA, 1999.
RBI’s Stand on the Penalties
According to the RBI, these penalties have nothing to do with the legality or otherwise of transactions or agreements between the banks and their customers; they are purely for noncompliance with the regulatory framework. This is also significant for customers because it assures them that their dealings with the banks are still valid and unaffected by the fines levied.
IDBI Bank has also ensured that the penalty shall not affect its financial viability or its daily functions. This is an important assurance for customer confidence and investor faith in the banking sector.