The Reserve Bank of India (RBI) has fined Jammu and Kashmir Bank (JKB) 500,000 rupees (around US$11,000) for failing to ensure adequate and effective arrangements when the bank arranged letter of credit (L/C) facilities for one of its customers.

The central bank says JKB failed to check that the customer would be able to meet his obligations under the L/C facilities.

Dual interest

The RBI notes that the L/C facility was granted to the customer even though JKB knew that one of its directors also served as a director in one of the customer's businesses.

This according to the RBI violates provisions in the 1949 Banking Regulation Act and a notice to that effect was served on JKB.

Transparency drive

JKB submitted a written response to this notice and the bank's CEO met with RBI officials, but the central bank said it had examined the evidence carefully and found that the violation was substantiated.

The RBI is currently on a drive to make India's banking sector more transparent. Disclosing to the public the nature and amount of penalties imposed on banks is part of that drive.

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