Murky Banking

 Paying heed to what Operation Red Spider reveals is of paramount importance otherwise growing nexus between fraud banks and black money hoarders can be gross.

Money laundering through banks !!  The  bizarre  and ignominious face of banking has finally  surfaced in India as well. A recent expose has validated the fact that Indian pvt. banks are not insulated from the vices of global private banking. Stories of LIBOR fixing scandal in Britain, bank finance to terror  in Iran and HSBC drug cartel now has an Indian edition as top notch Indian banks ICICI, HDFC and Axis bank involved in money-laundering. Govt is planning to bring in new players in banking industry, while finance Ministry and banking regulator Reserve Bank of India seems to be in complete dark about the maladies of Indian banking. This Cobrapost (web magazine) sting expose also dares the effectiveness of  Know Your Customers norms. It seems that KYC norms make genuine   customers to run from pillars to post but the same gets violated for the good of those deterring whom is the prima facie motto of KYC. 

A latest research from National Institute of Public Finance and Policy (NIPFP), a Govt. think tank, estimates that India’s current black money economy can be 30% of its Gross Domestic Product (GDP) nearly Rs 28 lakh crore. It is no rocket science to guess how this much of unaccountable cash sloshes about in the economy without getting caught. Definitely RBI and Finance Ministry are intimated with the fact that it is banks that facilitate such fraudulent activities but former has taken it for granted that latter will keep faltering and black money will keep laundering. There used to be “The Banking Cash Transaction Tax (BCTT) which would levy a tax of 0.1 percent on individuals who withdrew or deposited more than Rs 50,000 in a single day in cash. Even encashment of fixed deposits paid in cash were subject to this tax but Finance Minister P. Chidambaram withdrew BCTT for no obvious reason befor 2009 general election. Thus, instead of creating a tougher regulatory regime he seemingly preferred to make the system more feasible for misuse.

The most startling fact coming out of CobraPost revelation is that the whole process of turning black money into white is done via Standard financial practices like opening bank accounts, putting money in insurance products, allotting bank lockers and also via inventing exclusive investment plans for moneyed customers. It seems that banking officials are working as wealth managers for their revered rich clienteles and, for the purpose, don’t even hesitate to tamper with the accounts of innocent account holders. The ease and comfort with which the banking officials of those three banks seemed to be dealing with the customer in the sting videos makes it obvious that those higher up in the hierarchy would have been surely in the knowhow of such acts and if they weren’t, its even pathetic because if the higher authorities in the same institution are oblivious of what lower rung officials do, one must not expect much from RBI and Finance ministry.

Banking is a complex system and with the inception of electronic banking it has become even more complex regulating which is a hard challenge now. Vigilance hasn’t grown the way banking system has developed. Prevalent regulatory and monitory measures such as, Foreign Exchange Management Act or Prevention of Money-laundering Act, are victim of inadequate and incapable implementation. It is high time that Reserve Bank of India graduates itself as far as bank monitoring is concerned. It cannot do away with its responsibility just by imposing KYC norms on banks. It must fabricate a robust mechanism to keep a constant vigil on banking institutions making latter answerable to former.

Tons and tons of literature are there to validate that banking fraud has become a global phenomenon. Considering this, Governments worldwide are gearing themselves to implement stringent regulations and punitive measures to curb banking frauds. For instance, huge penalty has been put on banks indulged in LIBOR fixing scandal, HSBC was also adequately fined for laundering money to Mexican drug dealers and the issue of Iranian banks financing terrorism was also dealt with impeccably.

The callous attitude with which RBI and Finance Ministry is dealing with this bank scandal is pathetic. Paying heed to what Operation Red Spider reveals is of paramount importance otherwise growing nexus between fraud banks and black money hoarders can be gross. Banks are the most crucial economic institutions. An arbitrarily banking is disastrous. It’s high time that Govt. clears this banking mess by taking swift and strict actions against ICICI, HDFC and Axis bank. Firing lower-rung officials isn’t enough; senior management must be made accountable to this wrongdoing. Apart from this, a robust mechanism having modern regulatory laws must be incepted as soon as possible so that the future possibility of any such happening can be deterred in the bud.