RBI has imposed Rs 1 crore penalty on UCO Bank for flouting its instructions relating to opening of current accounts and providing bill discounting facilities to account holders without any borrowing facility with the bank resulting in “siphoning off of funds”.
RBI had carried out an inspection of books of accounts, internal control, compliance system and processes at one of the UCO bank’s branches in May-June of 2015.
On the basis of findings, a show-cause notice was issued to the bank for violation of certain regulations and instructions.
UCO Bank had discounted four Letters of Credit (LCs) at one of its branches and the proceeds were credited to the current accounts of beneficiaries that had not availed any loan facilities from the bank and the amounts were transferred to other group accounts, leading to siphoning off of money.
Before opening current accounts, the bank had not obtained ‘no objection certificates’ (NOCs) from the banks that had sanctioned regular credit facilities to these beneficiaries.
After considering the bank’s reply as also personal submissions, information submitted and documents furnished, RBI came to the conclusion that “these violations were substantiated and warranted imposition of monetary penalty”.
However, RBI added that the action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank and its customers.