Time to cleanse banking in India, The New Indian Express, July 17, 2013

Time to cleanse banking in India

17th July 2013 07:11 AM
In what is probably the single biggest penal action in the history of Indian banking, the Reserve Bank of India (RBI) has imposed stiff penalties totalling to ` 49.5 crore on 22 public and private sector banks for violating anti-money laundering and know-your customer regulations. This follows slapping of fines totalling to ` 10.5 crore against three “new generation” private banks on the same grounds following an expose by an online portal. As similar inquiries against other banks are reportedly at different stages, the list is likely to grow. The fact that the RBI found such a large number of banks violating its regulations shows that the breach is widespread and cannot be explained simply by the banker’s overzealousness to book business at any cost, especially in case of public sector banks whose culture is against undue risk taking.
Though the RBI claims that its inquiries did not reveal any prima facie evidence of money laundering, it has not given them a clean chit on this account and added that “any conclusive inference in this regard can be drawn only by an end-to-end investigation of the transactions by tax and enforcement agencies”. This is too serious a matter to be foreclosed with mere imposition of fines. The RBI should make its findings public so that people know what is happening in the banks to which they entrust their hard-earned money.
The government should immediately constitute a special investigation team of officials from the RBI, the directorate of enforcement and the income tax department to probe the suspected cases of money laundering. In the 1992 stock market scam, the joint parliamentary committee had held some foreign banks responsible. However, no civil or criminal proceedings were initiated against any banker and some of the key players subsequently emerged as entrepreneurs and consultants with the support of their banks. This time, the government should not allow the issue to be swept under the carpet.


This is a timely caution to government and regulators in the financial sector. Perhaps, confused with the shifting and dodging of responsibility by various authorities including finance ministry in the financial sector, FSLRC went to another extreme of suggesting a single regulator for financial sector. In the Indian context, such an institutional change may not happen that soon. But, regulators and GOI as also state governments should take cognizance of the blatant violations of established law by several agencies and take remedial action by following a coordinated approach. Coming to the limited issue of money laundering, finance ministry should take immediate supportive measures to follow up the symbolic action taken by RBI using its powers categorizing the goings on as a KYC issue.


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