RBI Penalizes 19 Lenders for Violating Currency Derivatives Norms

The Reserve Bank of India has imposed penalties on 19 lenders, including State Bank of India, ICICI Bank, Citibank, and Axis Bank, for violating currency derivatives norms. The central bank discovered that these banks sold derivative products to companies that did not understand them, contravening various instructions issued by the RBI. The penalties range from 5 lakh to 15 lakh, but the decision vindicates the claims of tiny companies that were burned by derivatives sold by banks.

Key Takeaways:

• The RBI has imposed penalties on 19 lenders for violating currency derivatives norms, including State Bank of India, ICICI Bank, Citibank, and Axis Bank.
• The banks sold derivative products to companies that did not understand them, contravening various instructions issued by the RBI.
• The penalties range from 5 lakh to 15 lakh, which may seem small, but the decision vindicates the claims of tiny companies that were burned by derivatives.
• The RBI had been scanning the derivative books of banks for more than a year and had sought information from 22 lenders about these transactions.
• The decision will hasten the settlement of remaining disputes between banks and small companies.
• OECD (Opening quote) The RBI order vindicates the stand of corporates, some of whom had sued banks on grounds of misselling. Others had claimed that some of the contracts were contrary to law, particularly the FEMA, said Berjis Desai, managing partner at law firm J Sagar Associates, which advised affected companies.
• Most matters had already been settled out of court with banks picking up 25-50 % of the losses.

Statistics:

• 19 lenders penalized by the RBI for violating currency derivatives norms.
• Penalties range from 5 lakh to 15 lakh.
• 22 lenders were sought information from by the RBI while scanning the derivative books.
• 25-50% of the losses were picked up by banks in the cases that were already settled out of court.

Sources:

• ET (Economic Times) edition dated April 25.
• RBI statement regarding the imposition of penalties on the 19 lenders.
• Berjis Desai, managing partner at law firm J Sagar Associates.