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May 26, 2011, 11.43 AM IST | Source: CNBC-TV18

Citi fraud: RBI may conduct special audit

Citibank may continue to face heat from the regulator over the Shivraj Puri fraud issue. Sources tell CNBC-TV18 that the RBI is dissatisfied with the bank's replies to its show cause notice, reports CNBC-TV18ís Vidhi Godiawala.

Citibank may continue to face heat from the regulator over the Shivraj Puri fraud issue. Sources tell CNBC-TV18 that the RBI is dissatisfied with the bank's replies to its show cause notice. The Central Bank may look at conducting its own internal audit of Citi's checks and balances and may even stall further branch expansions for the bank till it is satisfied, reports CNBC-TV18ís Vidhi Godiawala.

Here is a verbatim transcript of Vidhi Godiawalaís comments on CNBC-TV18. Also watch the accompanying video.

Citibank employee Shivraj Puriís doing still seems to be haunting the global banking major. RBI seems serious about its supervisory action in the Citibank fraud case. We understand from sources that RBI was perhaps not satisfied with Citibankís response to its show cause notice and its prior investigation. It is looking at various other options for further investigation and probe in this matter. It is likely to conduct a special audit in this Shivraj Puri fraud case, thatís what our sources are telling us.

We also understand that this special audit, which the RBI is contemplating as one of the options, will look at bringing in a third persons perspective or an opinion. So, they may look at hiring an integrated chartered accountant or an external agency over there which can give that extra opinion to the Reserve Bank. Thatís what our sources are telling us.

Also, what's not looking as good news for the banks, which our sources indicate to us, is that the RBI may not further process Citi's new branch license request, till this special audit report is out. So, that's certainly not coming in as good news. These are all the various options the Reserve Bank is working on.

Remember, the RBI had issued a show-cause notice to Citibank sometime last month. Citibank had also responded to the regulator and said that the major accused Shivraj Puri was imprisoned and they had also compensated the customers. Obviously, the regulator has something else in mind and its looking at various options to ensure that system loopholes are plugged in. Of course Citibank did not respond to our report.

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