Reserve Bank of India has sent show cause notices to over 12 banks for alleged violation of foreign exchange rules in sale of derivative products, banking industry sources said. Sources said notices were sent to banks for alleged violation of derivate deals done during 2007 and 2008 under the Foreign Exchange Management Act (Fema).
RBI issued notices seeking explanation as to why the banks recommended derivative deals to clients who did not have proper risk management policies.
RBI’s show cause notices are likely to be accompanied with a penalty claim for alleged violation of Fema, sources said.
Earlier this month, Supreme Court, while hearing a plea by Fixed Income Money Market and Derivatives Association (FIMMDA), directed the Central Bureau of Investigation, RBI and the Enforcement Directorate to file their responses in the Rs 25-trillion derivative contracts’ case.
FIMMDA had challenged the Orissa High Court order that directed CBI to investigate alleged violations in forex derivatives and obtained a stay from the apex court in March.
The Orissa High Court had passed the order on a petition by a businessman seeking investigations into the alleged violations. FIMMDA said the losses on derivative contracts were following the financial meltdown and not due to conspiracy.
In its submission before the apex court, CBI recommended that the contracts must be investigated by RBI and the Enforcement Directorate as it involved Fema violations.
