ICICI Bank fined Rs 59 cr for bond sale rule breach

Violation due to misunderstanding on timing of applicability of RBI directions: Lender

In what could be the highest fine levied on a bank in the country, the Reserve Bank of India (RBI) has imposed a penalty of Rs 58.9 crore on the country's secondlargest private sector lender ICICI Bank for violating norms linked to sale of government securities from the held-to-maturity (HTM) portfolio. The fine is also for not making necessary disclosures, the RBI said on Thursday.

The RBI said that the fine had been imposed through an order dated March 26. "This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers," it said.

ICICI Bank said the violation was "due to a genuine misunderstanding on the timing of the applicability of RBI's directions in this matter". It said: "RBI has imposed a penalty on the bank for continued sale of government securities classified as HTM."

The bank said it continued with the sales from HTM category for a few weeks during the quarter ended March 31, 2017.

In 2010, RBI had notified that if the value of sales and transfers of government bonds to and from the HTM category exceeds 5 per cent of the book value of investments in the category, a financial institution must make a disclosure. The central bank also said that financial institutions must indicate the excess of book value over market value for which provision is not made and that these disclosures are required to be made in "Notes to Accounts in FI's audited annual financial statements."

RBI said it was being done in exercise of powers vested in RBI under the Banking Regulation Act, 1949 after taking into account failure of the bank to adhere to the directions issued by central banker. ICICI Bank admitted that while its annual report for 2016-17 did mention sale of over 5 per cent of investments from the HTM category, it had failed to make the more disclosures as mandated. "The bank has subsequently been making the specified disclosure as directed by RBI in the audited financial results since the quarter ended June 30, 2017," it said.

As per RBI norms, banks need to classify investments into three categories of held-for-trading, available-for-sale and heldfor-maturity (HTM). The securities required to be held till maturity fall under HTM category. In case the sale of securities from this category exceeds 5 per cent of the required investment under HTM, banks need to disclose that in their audited annual financial statements, the market value of the HTM investments and have to indicate the excess of book value over market value.