Hit hard by money laundering allegations on India's major private banks - HDFC, ICICI and Axis - Reserve Bank of India (RBI) Governor Duvvuri Subbarao on Friday said that there is need for corrective action to prevent such illegal activities in the country.
Private Banks - HDFC, ICICI and Axis - were allegedly caught red-handed in Cobrapost's nation-wide undercover investigation called Operation Red Spider, and these major financial institutions were willing to turn black money into white. Cobrapost shared the video footages of the operation to reporters at a press conference a few days ago and the footages are also available on its site.
"I can't at this time say or make a broad sweeping statement that there are no transactions taking place at all, but I believe the system is largely safe," Subbarao said at a banking industry gathering.
"However, there is need for some corrective action. We are going to the head offices of all those banks to check what the system is for detecting management-level control over these transactions."
The RBI had earlier said that it has begun probe into the allegations of money laundering against a few private banks.
"The RBI is collecting information, and the RBI has been in touch with the banks. At the moment, that's all I can say," Urjit Patel, deputy governor of the RBI, told reporters last week.
The sting operation by Cobrapost found out that many private sector banks floated the rule and turned black money to white, accepting cash amounting to lakhs.
"Our investigation, conducted across dozens and dozens of branches of these banks and their insurance affiliates, across all five zones of the country, revealed these shocking facts that these money laundering practices are part of a standard set of procedures within these banks," Cobrapost Editor Anirudh Bahl had told reporters.
Cobrapost alleged that these private sector banks launder black money in the following manner:
1) Accept huge amounts of cash and invest it in insurance products and gold.
2) Open an account to route the cash into various investment schemes of the bank.
3) Do it even without the mandatory PAN card or adhering to the KYC norms laid down by the Reserve Bank Of India.
4) Split the money into tranches to get it into the banking system without being detected.
5) Use "benami" accounts to facilitate the conversion of black money.
6) Use accounts of other customers to channelize the black money into the system for a fee.
7) Get demand drafts made for the client either from their own banks or from other banks to facilitate investment without it showing up in the client's account.
8) Keep the identity of the investor/depositor secret.
9) Open multiple accounts and close them at will to facilitate the investment of black money.
10) Invest black money in multiple instruments in the names of different individuals, not necessarily drawn from among the family.
11) Allot lockers for the safekeeping of the illegitimate cash, including special large size lockers to accommodate crores of hard cash.
12) Personally come to the residence of the client to take the black money deal forward and collect the cash, even bring along counting machine.
13) Use provisions like Form 60 to deposit the illegitimate cash into the account to route it into investment.
14) Help the client transfer black money abroad through NRE (Non-Resident External)/NRO (Non-Resident Ordinary) account transfer.
