The Reserve Bank of India (RBI) has imposed a US$150 million fine on UCO Bank for its failure to follow proper letter of credit (L/C) procedures.

The central bank said UCO Bank also ignored regulatory norms in respect of current account opening and the provision of bill discounting facilities.

Funds siphoning

The RBI found that UCO Bank had discounted four L/Cs at one of its branches and the funds were credited to current accounts of entities that had not previously borrowed from the bank.

The L/C proceeds were subsequently transferred to other accounts, resulting in what the RBI determined to be siphoning of funds.

Deficiencies identified

UCO Bank also failed to obtain 'no objection certificates' from banks that had sanctioned regular credit facilities to these beneficiaries, according to the RBI.

It found that UCO Bank had demonstrated "deficiencies in regulatory compliance" and that after considering the bank's case, the RBI came to the conclusion that these violations were "substantiated and warranted the imposition of a monetary penalty," according to an RBI statement.

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