In the alleged multi-crore foreign exchange derivatives scam, the Supreme Court has asked RBI to give details of the irregularities by various private and foreign banks, and if any Fema violation is found, criminal proceedings be initiated against them.
Earlier, RBI had penalised more than 19 banks for violations of directives on derivatives contracts, and the banks got away with just fines.
RBI says penalties were imposed for contravention of various instructions issued by the regulator in respect of derivatives, like failure to carry out due diligence in regard to suitability of products, selling derivative products to users not having risk management policies among others.
However, the banking regulator had earlier declined to share findings of inspections of banks on the ground that such findings were confidential in nature and disclosure of which would prejudicially affect the economic interests of the state and harm the banks competitive position.
A Bench headed by Justice RM Lodha sought RBIs response in petitions challenging the Orissa High Court judgment of December 2009 that directed a full-fledged CBI inquiry into the contracts sold by some Indian banks to buyers who sought to use them as a hedge against currency fluctuations. The derivatives holders were caught on the wrong side after the rupee appreciated during 2007 and 2008.
Earlier, the apex court while staying CBI investigation had issued notice to chartered accountant Pravanjan Patra, the petitioner before the HC, on petitions filed by Foreign Exchange Dealer Association of India, Fixed Income Money Market and Derivatives Association (Fimmda) and others.
The apex court had also allowed the Indian Bank Association (IBA) to be impleaded as a party after it said the High Court order affected all its 159 members including 27 PSU banks, 27 foreign banks and others.
The Fixed Income Money Market and Derivatives Association (Fimmda), representing scheduled commercial banks, financial institutions, insurance companies and primary dealers in foreign exchange, through its counsel Sanjay Kapur had argued the competent authority to look into these matters, which involves provisions of Foreign Exchange Management Act and the Banking Regulation Act, is RBI.
Earlier, CBI had recommended the apex court that the derivative contracts entered into by various banks should be investigated by banking regulator RBI and Directorate of Enforcement (ED) to identify the violations of Foreign Exchange Management Act (Fema) and appropriate action should be taken.