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IPO scam: RBI fines HDFC Bank, IDBI
BS Banking Bureau in Mumbai
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February 28, 2006 08:57 IST
The IPO allotment scam has claimed more victims. The Reserve Bank of India [Get Quote] on Monday imposed financial penalties on Industrial Development Bank [Get Quote] of India and ING Vysya Bank [Get Quote] and fined HDFC Bank [Get Quote] for the second time since January 23. This takes the total number of banks penalised for their role in the scam to nine.

The penalties were imposed for violating the know-your-customer norms, breaching prudent banking practices and not adhering to directives and guidelines for granting loans against shares/IPOs, the RBI said in a statement.

HDFC Bank has been fined Rs 25 lakh, ING Vysya Bank Rs 10 lakh and IDBI Rs 5 lakh. Last month, the RBI had penalised seven banks - ICICI Bank [Get Quote] (Rs 5 lakh), Citibank (Rs 5 lakh), Standard Chartered Bank (Rs 5 lakh), HDFC Bank (Rs 5 lakh), Vijaya Bank [Get Quote] (Rs 10 lakh), Bharat Overseas Bank (Rs 20 lakh) and Indian Overseas Bank [Get Quote] (Rs 15 lakh).

HDFC Bank has been fined for failing to show prudence in opening 271 savings accounts with one common name and multiple unconnected names.

These accounts were used by the IPO allotment process manipulators for opening 1,142 demat and 24 loan-against-share accounts.

In January 2006, HDFC Bank was fined for violating guidelines on opening of deposit accounts, monitoring of transactions for adherence to KYC norms and failure of internal controls.

The demat accounts opened with HDFC Bank were used for making multiple applications in IPOs. The bank had even issued around 4,000 cheque books with 100,000 leaves to one person who effectively controlled operations in 24 loan-against-share accounts, the RBI said, adding that HDFC Bank had also failed to follow norms for monitoring large-value transactions in customer accounts.

The Bangalore-based ING Vysya Bank has been penalised Rs 10 lakh for failing to adhere to the KYC norms in opening joint savings bank accounts.

It especially failed to independently verify the addresses of the joint account holders, solely relying on the principal joint account holder's identity, the RBI said.

According to the RBI, ING Vysya Bank did not apply due diligence in establishing relationships among joint account holders and violated RBI instructions on IPO finance, particularly the limit on maximum permissible finance per borrower.

IDBI has been fined for extending IPO finance in excess of the limit specified for individuals by allowing pooling of funds by certain individuals. The pooling of IPO finance was facilitated by non-adherence to the KYC norms, the RBI said.

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