Lax implementation of KYC norms has caused losses, says SBI

In the wake of an expose by online news portal Cobrapost on violation of KYC norms by several banks of the counrty, State Bank of India (SBI) chairman Pratip Chaudhuri has said his bank has been "put to a loss" by the non-compliance of guidelines by private sector peers.

"Our bank has been put to a loss because of the relatively lax implementation of the know your customer (KYC) norms, particularly in private banks," Mr Chaudhuri told PTI in an interview in Mumbai.

The country's top three private sector lenders, ICICI Bank, HDFC Bank and Axis Bank, which were the targets of Cobrapost in February, have already been penalised by the Reserve Bank of India for KYC violations.

Mr Chaudhuri asserted that not a single KYC anomaly has been found against his executives either in the RBI probe or in the bank's own probe (overseen by a deputy managing director who is not part of the national banking team) following the release of the second instalment of sting operation by the portal, which also showed SBI officials erring on norms.

He said the sting operation had found one executive offering 'hawala' services, in which money can be deposited in one country and withdrawn in another, while another asked the undercover reporter to split up the amount and deposit.

"We ordered an enquiry into all these cases. We have done a thorough investigation and have not found a single case (of wrongdoing).... The RBI has also not faulted us and has not found any mistake in any of our branches so far," Mr Chaudhuri said.

Cobrapost, in February, came out with a video showing executives at the top three private banks offering services like accepting large amount of unaccounted cash, which is against anti-money laundering norms and also against the KYC norms. However, the subsequent RBI probe did not find any anti-money laundering violations.

In May, the portal came out with another video showing executives at 20 financial institutions, including SBI, LIC and a clutch of private and foreign lenders apart from NBFCs, allegedly offering similar services.

Welcoming the expose, Mr Chaudhuri said the regulatory bodies, including the Reserve Bank, should conduct such clandestine stock-taking themselves.

"This is a good thing and it would be extremely helpful if the RBI or some other agency goes and does spot-checks of this kind incognito," he said.

Aggressive business targets set by private banks and the system of incentives are the main reasons cited for the non-adherence of set norms.

When pointed out that SBI too incentivises its staff for deposit collection, Mr Chaudhuri said it is a very normal practice and other public sector undertakings too incentivise employees in this way.

About the impact of the expose on SBI's fee income, the chairman said the bank does not sell much of third-party products, except the offerings of its subsidiaries such as credit cards, general insurance and life insurance. Even for these, he said, a lot of diligence is carried out.

The biggest fee income comes from the treasury operations which stood at Rs 1,098 crore in FY13, he said.

State Bank of India runs the second largest treasury in the country after LIC.