BOMBAY -- India's central bank, probing a billion-dollar securities scandal, said Bombay branches of Citibank and Bank of America were among a number of institutions that flouted its trading guidelines.

The units of Citicorp and Bank America said they had no immediate comment on the statement by the Reserve Bank of India, its third progress report on the investigation into irregularities between April 1991 and May of this year.

Diversion of Funds

Regulations are probing alleged collusion among brokers and bank officials in diverting funds from the government-securities market for speculation in shares on the Bombay Stock Exchange.

The 90-page document said Citibank did not adhere to certain Reserve Bank guidelines for accepting or issuing paper known as bankers receipts.

Fraudulent or uncovered bankers receipts - promissory notes issued by a bank to pledge delivery of government securities - have been at the heart of the $1.2 billion scandal.

The report said Citibank had sometimes failed to issue bankers receipts on security paper and sometimes issued and received them without fulfilling requirements for multiple signatories.

Citibank also allegedly accepted bankers receipts that were not in the prescribed format, the central bank said, and had not maintained proper records to verify signatures of the issuing bank's officials.

Reserve Bank rules require banks in India to hold at least a certain number of low-yield government securities. Banks buy and sell these securities directly and through brokers.

Citibank is a major player in the Indian securities market; its $7.6 billion of dealings during the 13-month period under investigation account for 17% of the total by all banks.

B of A Credit Line

The report said Bank of America had allowed securities broker Harshad Mehta, the alleged kingpin of the scandal, a credit facility of up to $7 million without authorization.

Although there has been no claim on this amount from anybody so far, the bank violated banking norms, the report said. "The bank has pleaded that this lapse occurred due to a clerical error, which it difficult to believe."

29 Arrests

The Reserve Bank said Bank of America had allowed its corporate borrowers to use credit facilities for investing in securities in violation of banking norms.

Since the scandal broke, the Central Bureau of Investigation has arrested 29 people, including Mr. Mehta and several other brokers and bank officers.

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