Penalty on UCO Bank for bill discounting without borrowing facility with bank

By | July 28, 2016

RBI Imposes Monetary Penalty on UCO Bank

Date : Jul 28, 2016

The Reserve Bank of India has imposed a monetary penalty of ₹ 10 Million on UCO Bank for contravention of its instructions relating to opening of current account and providing bill discounting facilities to account holders without having any borrowing facility with the bank resulting in siphoning of funds. This penalty has been imposed in exercise of powers vested in the Reserve Bank under the provisions of Section 47(A)(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949, taking into account the violations of the instructions/ directions/guidelines issued by the Reserve Bank from time to time.

This 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.

Background

The Reserve Bank of India had carried out an inspection of books of accounts, internal control, compliance system and processes at one of the UCO bank’s branches during May-June, 2015. On the basis of findings of this inspection a Show Cause Notice was issued to the bank for violation of certain regulations and instructions issued by the Reserve bank of India, namely –

  1. The bank had discounted four Letters of Credit (LCs) at one of its branches and the proceeds were credited to the current accounts of beneficiaries which had not availed any loan facilities from the bank and the amounts were transferred to other group accounts resulting in siphoning of funds.
  2. Before opening current accounts, the bank had not obtained ‘No Objection Certificates (NOC)’ from the banks which had sanctioned regular credit facilities to these beneficiaries.

After considering the bank’s reply, as also, personal submissions, information submitted and documents furnished, the Reserve Bank of India came to the conclusion that these violations were substantiated and warranted imposition of monetary penalty.

Ajit Prasad
Assistant Adviser

Press Release: 2016-2017/250

Leave a Reply