According to the RBI, offences ranged from selling unsuitable products to corporates to selling products without verifying the underlying exposure. Some of the banks had also flouted with the rule by selling derivatives to companies not having any risk management practices in place.
While six banks have been fined Rs 15 lakh each, eight banks have been fined Rs 10 lakh each. A penalty of Rs 5 lakh each has been imposed on the remaining five banks.
According to media reports this is the maximum penalty that the RBI can levy under provisions of the Banking Regulation Act.
Also where, more than one complaint was registered against a bank, the central bank decided to compound the offences and imposed a Rs 5 lakh penalty on each offence.
This action may not make any dent in the bank's earnings, but will give the corporate an edge while negotiating with a bank.
Many corporates have alleged that banks had sold them derivative products in bad faith as a result of which they lost money. And for this reason, the corporates refused to honor their contracts. Banks argue that the risks were well explained to the corporates and they had undertaken the contract after a clear understanding. These disputes have landed in court.
Derivatives contracts are designed to provide hedge against market risks -- like foreign exchange and interest rate risks. In the years leading up-to 2008, many banks sold derivative products as it allowed them to earn fat fees. These products incurred heavy losses after Lehman Brothers collapsed.
Some of the corporates entered into high risk, loss-making deals which included Hexaware Technologies and Sundaram Multi-Pap. Few of these companies later sued ICICI Bank for its derivative losses. These disputes resulted in an RBI investigation. After this the central bank barred lenders from selling exotic derivatives.