The central bank seems convinced that no scam has taken place in India’s top three private sector banks, which are currently under its scanner after an online magazine levelled money-laundering allegations against them.
An indication to this effect came when, at the sidelines of an event on risk-based supervision, K. C. Chakrabarty, Deputy Governor, Reserve Bank of India, said “no scam has happened.”
In a sensational undercover operation across the country, online magazine cobrapost.com caught officials at some of the branches of ICICI Bank, HDFC Bank and Axis Bank on camera allegedly offering to convert tax-evaded money into legitimate money.
Chakrabarty said, “Allegations don’t mean know-your-customer (KYC) norms have been flouted. There is not a single transaction (relating to money laundering as alleged by cobrapost) which has taken place…These are transactional issues, which have nothing to do with money laundering.”
Disguising assets
Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that produced them.
Through money laundering, the launderer transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source.
The RBI Deputy Governor observed that people may not be paying tax and some money flows into the system (banking). However, there are clear instructions to banks on how to prevent such monies from entering the banking system. “I am not saying there is no problem. Even without the sting operation, I know there is a problem in the system,” said Chakrabarty.
The central bank has initiated the process of carrying out comprehensive scrutiny covering both head-office and branches of ICICI Bank, HDFC Bank and Axis Bank.
This apart, the Reserve Bank has also undertaken a thematic study in respect of banks that are active in selling gold coins/wealth management products to examine whether there are systemic issues and to plug deficiencies and legal loopholes, if any.
The final reports on all the three banks will be completed by March 31, 2013, and thereafter further course of action as necessary will be initiated by the RBI. Chakrabarty said if the scrutiny shows that there is a need to further strengthen any guidelines, then the RBI will do so.
Financial inclusion
However, the RBI Deputy Governor observed that if KYC is made too stringent at a time when the banking system is going all out on the financial inclusion front, then opening bank accounts for the financially excluded may become a tough task.
On the possibility of taking action against the three private sector banks, Chakrabarty said: “We cannot take action based only on allegations. We go by evidence...If we find something is wrong, we will take action.”