The Reserve Bank of India (RBI) has imposed a fine on two big banks – IDBI Bank and Citibank NA on charges of breaking financial discipline. Both banks have been fined about Rs 72.5 lakh in total. This action has been taken on violation of rules related to foreign currency, which falls under FEMA (Foreign Exchange Management Act), 1999.
Both banks themselves have also informed the stock market for this fine and RBI has also clarified that the step is not based on the validity of customer transactions, but is based on regulatory disturbances.
Why IDBI Bank imposed a fine of 36.3 lakhs?
IDBI Bank is accused of violation of FEMA, Section 10 (4) and Section 11 (3) of 1999. According to the RBI, the bank did not conduct the required de -delivery ie in transactions related to 363 Inward Remedies (money sent from abroad) between June 2016 and January 2023.
The bank did not follow the rules during processing and permission of these foreign exchange transactions, making it directly to a violation of FEMA.
IDBI Bank informed the stock exchange in this matter and said:
“This action will not affect the bank’s financial position, operations or any other activity.”
Process of RBI action: Reason show cause notice to fine
RBI first sent a show cause notice to IDBI Bank, asking why the bank did not follow the rules. In response, the bank sent a written explanation and after that he also submitted oral submissions.
However, after seeing all the facts and the replies presented, RBI came to the conclusion that the rules have been violated, and it is appropriate to impose a fine of Rs 36.3 lakh on the bank.
Citibank NA also fined 36.28 lakhs, what is the case?
Citibank Na has also been fined Rs 36.28 lakh under Section 11 (3) of FEMA, 1999. This fine is due to negligence in reporting transactions under Liberalized Remittance Scheme (LRS).
The RBI said that the bank did not report the transactions associated with LRS properly, which is a violation of the rules. In this case too, RBI issued a notice to Citibank first and the fine was fixed after their reply and oral submission.
Customers do not need to panic: RBI’s assurance
The RBI has clarified that this action is based only on the shortcomings of the regulatory compliance. This means that whatever disturbances these banks have done is associated with their internal operations and reporting, not by the legitimacy of any transactions done with their customers.
Simply put, if you are a customer of these banks, then your funds, services or transactions are completely safe.
What is FEMA and why is it necessary to follow?
FEMA (Foreign Exchange Management Act), 1999 is an Act of the Government of India, which controls the transactions, investment and remedies of foreign currency in the country. It is necessary for any bank or financial institution to follow it so that India’s financial image and transparency remains internationally.
