Violation of Sec 20(1) of Banking Regulation Act, 1949 - RBI - Reserve Bank of India

DBOD.No. 632 /08.39.002/2005-06

March 23, 2006

The Chairman and Chief Executive Officer,
Jammu and Kashmir Bank Ltd.,
Corporate Headquarters,
M A Road, SRINAGAR – 190 001
Jammu and Kashmir

Dear Sir,

Please refer to your letter ref no. JKB/CAD/2005-5339 dated December 15, 2005 furnishing reply to the Show Cause notice issued vide our letter DBOD. No.425/08.39.002/2005-06 dated December 6, 2005 and the personal hearing given to you on February 1, 2006, in connection with the imposition of penalty on the bank under section 47A(1)(b) of Banking Regulation Act, 1949, for violation of Section 20(1) of B.R.Act, 1949.

2. After carefully examining the bank's replies, the Reserve Bank of India has held that while granting Letter of Credit facilities to one of its constituents, the bank had failed to ensure that adequate and effective arrangements were made by the constituent to meet the commitments under the LCs, even though the bank was aware that one of the Directors on its Board, was also a Director on the Board of its constituent. This had resulted in devolvement of LC on the bank and fund based exposure to the constitutent and thereby the bank had violated the provisions of Sec 20 (1) of the Banking Regulation Act, 1949.

3. In view of the above the Reserve Bank of India has imposed a penalty of Rs.5.00 Lakh (Rupees five lakh only) on the bank.

4. You may note to disclose the particulars of the above penalty in the 'Notes on Accounts' to the balance sheet in the next Annual Report of the bank, in terms of RBI Circular DBOD. BP. BC. 49/21.04.018/2004-2005 dated October 19, 2004.

Yours faithfully,
(Prashant Saran)
Chief General Manager-in-Charge