RBI slaps Rs 1.95 cr fine on 19 banks for flouting derivative norms

Nineteen banks penalised for selling derivatives to companies who did not have risk management policies, resulting in losses and subsequent claims

Mumbai: The Reserve Bank of India has imposed a total penalty of Rs1.95 crore on 19 banks, among them the State Bank of India, HDFC Bank, ICICI Bank and Citibank, for violating norms on derivatives, an instrument that is commonly used to hedge financial risks. 

“The penalties have been imposed on these banks for contravention of various instructions issued by the Reserve Bank of India (RBI) in respect of derivatives,” the RBI said in a statement last night.

According to the RBI, the lenders failed to carry out due diligence with regard to suitability of products and sold derivative products to companies not having risk management policies. They also failed to verify the adequacy of eligible limits before selling derivatives, it said.

Banks sell derivatives to help companies to hedge risks against fluctuations in foreign exchange value and interest rates, and earn a fee on this. However, it was found that several companies bought currency derivatives to make quick money, instead of hedging their risks, and suffered losses because of unforeseen fluctuation in the foreign exchange value, in the wake of the global financial crisis in 2008, reports PTI.

Many companies claimed that they were mis-sold these products by the banks without explaining the risks attached with such instruments and they also moved the court to recover the losses. One of the cases pertaining to losses on account of a derivatives contract is still pending before the Supreme Court.

A fine of Rs15 lakh each has been imposed on Axis Bank, Barclays, HDFC Bank, ICICI Bank, Kotak Mahindra and Yes Bank and a fine of Rs10 lakh each has been levied on Citibank, BNP Paribas, State Bank of India, Credit Agricole-CIB, Development Credit Bank, ING Vysya Bank, Royal Bank of Scotland and Standard Chartered Bank. Bank of America, DBS Bank, Deutsche Bank, HSBC and J P Morgan Chase Bank will each have to pay a fine of Rs5 lakh.

“On a careful examination of the banks, written replies and the oral submissions made during the personal hearings, the Reserve Bank found that the violations were established and the penalties were thus imposed,” the RBI stated. The RBI had issued show-cause notices to these banks. Most of the banks who have been penalised declined to comment on the RBI’s action.


Pilots’ association writes to PM demanding CBI probe into ‘mismanagement’ of Air India

Indian Commercial Pilots’ Association blames management for mounting losses; demands investigation into withdrawal of profitable routes and plans to acquire over 100 new aircraft

New Delhi: The Indian Commercial Pilots' Association (ICPA), which is spearheading the protest strike launched by pilots of Air India last night, today asked the prime minister to order a probe by the Central Bureau of Investigation (CBI) into the mismanagement of the airline that has caused mounting losses, and to take steps to restore it to its past glory.

In a letter to Dr Manmohan Singh, the association said, "The government of India has all the machinery and tools to investigate all the shortcomings of this management and hold them accountable. We, the ICPA, now demand a CBI inquiry or any appropriate body to inquire into the scams of the airline."

The letter signed by Rishabh Kapur, general secretary, ICPA, has demanded a probe into the cancellation and withdrawal of profitable routes and bilateral "giving away" to either private or foreign carriers, and the orders for acquisition of 111 new planes between the erstwhile Indian Airlines and Air India, reports PTI.

The Association has also demanded an inquiry into what it describes as "the under-utilisation of aircraft and various facilities like engine overhaul shops at Delhi and Mumbai, training and simulators at Central Training Establishment in Hyderabad, which are causing loss of revenue and extra cost to the company".

It has said that the mismanagement of Air India, once the "nation's pride", has led it "into deep waters and now it is even struggling to stay afloat".
The Association said that prior to the merger, Air India and Indian Airlines had losses of Rs455 crore and Rs280 crore, respectively, but in three years this had escalated to Rs16,000 crore, despite hiring consultancy firm Deloitte at a cost of Rs90 crore to advise on corrective measures.

ICPA labelled the management as "incompetent", saying it was "sabotaging the future of the airline". It said that "the intention of the management seems very well scripted to buy new airplanes, upgrade machinery (like SITA, SAT, IOCC) at a whopping Rs 800 crore) and kill the morale of the employees, so that they agitate, making way to sell the airline in distress".



Akshay Verma

5 years ago

The CMD Of the Air India management should be removed. He has tarnished the image of the airline and has contributed to many losses for the past 3 years. REMOVE THE CMD. The pilots are right at their part. Parity is important. People please wake up and support the movement. It is for your own safety in the skies.

Air India pilots on strike from midnight; 19 flights cancelled, many more delayed

Management declares strike illegal; says it has derecognised pilots’ association

New Delhi: Some Air India pilots launched a strike from midnight last night, resulting in the cancellation of at least 19 flights and delays to many more. The Air India management has said that the strike is illegal and it announced that it has derecognised the Indian Commercial Pilots' Association (ICPA), of which most of these pilots are members.

According to official information, eight flights from Delhi and 11 from Mumbai were cancelled this morning and many more were delayed by more than three hours due to the protest action.  

"We have derecognised the ICPA, the strike is illegal and they have committed contempt of court. We are likely to move court soon," a senior official told the Press Trust of India. The ICPA offices in Delhi and Mumbai were also sealed this morning.


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