Commission des sanctions (Commission of Sanctions) of France has held State Bank of India Paris guilty of large scale irregularities over a prolonged period in management of accounts, banking functions and more particularly unreconciled entries and insufficient control on daily entries and consequently the bank has been slapped a fine of Euro 300,000.
A close scrutiny of complaints against SBI Paris that have resulted in the slapping of a punitive fine shows that efficiency had been given a go-bye and officers, who were obviously incompetent, were being obliged and given foreign postings by SBI bosses. The present case shows how local law in a foreign country was being violated and there was anarchy in SBI Paris
It was on the basis of a letter of December 23, 2013 from the President of the AUTORITÉ DE CONTRÔLE PRUDENTIEL informing Commission of Sanctions that the Collège de supervision de l’ACPR (supervision College of ACPR), acting in sectoral sub-panel of the bank, had decided at its meeting on December 16, 2013 to open disciplinary proceedings against STATE BANK OF INDIA (SBI Paris), having registered office at 12-14 roundabout of the Champs-Elysees, Paris.
In its defence, of April 3, July 18, September 17 and November 8, 2014, SBI Paris had stated that it would not contest the complaints but had requested that the proceedings be held in camera. SBI Paris also requested the Commission to either dismiss the complaints or not to order such a penalty that would compromise its business. SBI Paris also urged that in the event if a penalty is imposed, it should not be published.
During hearing François Lemasson, representing the College, maintained all reported complaints and asked for strong punishment.
Considering the submission of SBI Paris on January 13, 2015 on the rapporteur’s report and also the other documents on record, including the final report signed March 26, 2013 by Mr. Hervé Dallerac, Inspector General of the Bank of France and given the Monetary and Financial Code, in particular Articles L. 612-39 and R. 612-35 R. 612-51 as well as the law no 93-05 of 21 December 1993 as amended by the Committee on Banking Regulation on the control of major risks, in particular Articles 1.1 and 10; Besides the law governing Banking Regulation and finance relating to internal control for credit institutions and investment firms and the law governing the internal control of the banking sector companies, payment and investment services subject to the control by the
Authority Prudential and Resolution, The Sanction Commission of the ACPR, comprising of Rémi Bouchez, Chairman, and Francis Crédot Peter Florin, André Icard and Jean-Pierre Jouguelet granted the request to hold the hearing in camera at its meeting of January 30.
Present were Breillat, rapporteur, assisted by Aline Waleffe, his assistant; Yann Pouëzat, CEO of the representative of the Treasury, who reported “no observations to make”; Lemasson, representing the College of ACPR, assisted by Anne-Marie Moulin, Deputy Director of Legal Affairs of the ACPR; Laurent Schwebel, Deputy Head of Service Institutional Affairs and Public Law, Tanguy Quintrie Lamothe, within this framework service, Jérôme Chevy, of banking supervision, and Judith Azevedo. Mr. Lemasson proposed the imposition of a reprimand together with a fine of 500,000 euros, in a decision that should be published in a form nominative;
The general manager of SBI Paris and Director of Compliance, assisted by Caroline Mercier-Havsteen and Serge Durox, lawyers to the Court (EY Law Firm) and Ms.Anne-Claire Bizouarne (Ernst & Young and Associates) were also present.
The representatives of SBI Paris deposed in the end.
SBI Paris is the French branch of the STATE BANK OF INDIA. It is India’s largest bank in Paris with the Indian State being its majority shareholder (62.31% of capital). it has been authorized as a credit institution in 1981; the bulk of its business is in providing financing and issuing guarantees to companies active in International trade; at the end of 2014, its total assets amounted to € 518 million and commitments of balance sheet about 59 million; It has17 employees.
SBI Paris was the subject of a spot check by services Banking Commission from 23 July to 15 December 2009, which had resulted in the signing of a report on July 22, 2010, A follow-up letter was sent from the General Secretariat ACPR on October 5, 2010 following a site visit April 17, 2012. A new control check was also conducted from September 10 to December 7, 2012. This resulted in the signing of a final inspection report March 26, 2013.
On the basis of this report, the College of ACPR, acting in sectoral sub-panel of the bank, decided at its meeting of December 16, 2013, to start disciplinary proceedings. The complaints were examined on the following basis:
- On the operation of the permanent control system
- On the organization of the compliance control system
- The permanent control of the accounting and regulatory reporting
- On the granting of credits
- On formalizing procedures for granting loans On the assessment of credit risk
- The credit risk monitoring
- On the accounting audit trail, and
- The regulatory reports
It has been concluded by the Commission that SBI Paris SBI Paris “has not implemented a comprehensive centralization its risks related entities within the meaning of Article 3 of Regulation No 93-05 of Monetary and Financial Code (MFC). “Consequently, its commitments on the Z group amounted to 38.48% of its equity.” The first paragraph of Article 1.1 of the Regulations requires each of these institutions “Always respect a maximum ratio of 25% among all weighted net risks it incurs as a result of the operations by beneficiary and the amount of its own funds “; that according the second subparagraph of Article 10 of that regulation, reporting credit institutions must implement “all necessary means an exhaustive centralized commitments, especially those made to beneficiaries related to the meaning of Article.
Further, the Commission puts on record that SBI Paris did not dispute its failure to implement a comprehensive centralized commitments related entities within the meaning of the above provisions reminded of Regulation No 93-05 nor the alleged excess; the actions taken to improve monitoring its consolidated exposures and relevent controls.
On the operation of the permanent control system, it has been pointed out that SBI Paris had not met its obligation to have always a person responsible for ensuring the coherence and effectiveness of control of risk. it is only on April 19, 2012, two days after a visit on-site SGACP, that agency was organized amd this was also limited to verification of regulatory reports before submission to the CPA.
From November 13, 2012, the post of assistant manager in charge of compliance function, remained vacant til January 2, 2013 and the document sent each month to the headquarters about the degree of compliance of each area of activity of the branch was marked “complied” for each budget without performing any check. The compliance report was also it was also pre-filled and stamped “fully complied” until March 2012. These deficinecies were not disputed by the SBI.
According to another complaint, the permanent accounting control was also deficientand the “writing part” of the control was not systematic while the register was sometimes ticked off in the absence of supporting documents and it was not always performed in d + 1 and errors and accounting lapses were established; the second level of regulatory control was limited to a reconciliation of the outstanding principal balance with the carry forward balance in the regulatory statements. Mistakes have also been made in maintaining the liquidity ratio June 30, 2012. Thus, in the absence of control over this point, the treasurer calculated a liquidity ratio of 113.6%, while the regulatory coefficient transmitted SGACP was 110% and after correction of numerous errors and
various imputation affecting liquidity and liabilities reported on the same date, SBI Paris should have declared a coefficient of 104%.
SBI Paris also did not dispute the deficiencies relating to the permanent control accounting and regulatory reporting, incidentally also noted by the audit firm X as part of its mission to Paris on SBI statements at 30 June 2012; that weaknesses in control of accounting information and regulatory reports had already been recognized by the 2009 monitoring mission.
SBI paris has also been censured on complaints relating to credit risk, granting credits and on formalizing procedures for granting loans.
SBI Paris provides no evidence to challenge the findings in the audit with relation to the complaint in question, which shows that the terms of engagement were neither accurate nor subject to a consistent procedure. This deficiency had already been noted in the control report July 22, 2010 and mentioned in the letter on October 5, 2010 but remedial steps were not taken.
In the second part of the complaint 4 files linked to collateralized Indian credit institutions or French, or the major part of the branch portfolio, were not documented; this deficiency, affecting customer awareness, has been raised in several cases, which also comprise agreement with SBI Paris.
What is a serious finding is that several files reveal that loans with fragile signs are not distinguished from others even as the SBI Paris procedure manual provides in this case, the establishment of close monitoring and, in order to identify them as account under “Watch List”, the need to classify them in the category “Special Mentioned Account”. The guarantor bank is supposed to confirm that it has, in respect of the customer, met its obligations in the fight against money laundering and financing of terrorism and hence these files should have been so classified.Some deficiencies that raise concern include (i) the transfer without proof at the end of 2011 some pending on an account called “our special remittance account number 11179066239 “debit of account held by SBI Mumbai pending that have disappeared as a result of the accounting by SBI Paris, (ii) the high number unreconciled entries between the seven Nostro accounts SBI Paris, (iii) insufficient control on daily entries — the number of unjustified operations are important, especially regarding documentary credits
It has come to light that the Reserve Bank of India did not directly address the pointers to ensure traceability and SBI Paris has not been able to document an audit trail. Paris SBI has admitted that during the period in question, the audit trail for statutory regulation was not retained after manual correction in the digital format under proper software in order to ensure the traceability of these corrections as the procedure for the audit trail was still being developed. This deficiency had lasted at least five years/
The complaints against SBI Paris relate to compliance with the regulation concerning major risks; the permanent control system; the rules for granting credit and appreciation and credit risk monitoring as well as the shortcomings of the audit accounting trail. During the hearing of complaints recorded at the time of the on-site inspection, the SBI Paris managers stated their desire to reestablish a relationship of trust and continue efforts to control and improve the internal accounting and control system of the bank. It was also stated at the hearing that the headquarters of SBI informed the proceeding that SBI Paris wants to reiterate respect for compliance and it has already recruited a deputy director responsible for compliance.
The Sanction Commission considered that after a net income of EUR 600 000 in 2013, SBI Paris had a net loss last year and its equity was 82 million euros at the end 2014. It considered the shortcomings and issued a reprimand and ordered a fine of 300, 000 Euro.
The Commission has stated in its order in view of the nature and duration of the deficiencies, the publication of this order is not likely to seriously jeopardize the financial markets, it is therefore appropriate that this decision be published in the register of the ACPR and can be accessed at Commission secretariat.