Subir Roy May 21, 2013 Last Updated at 21:44 IST
Banks and regulator - all fall down
The Cobrapost sting operation and its aftermath have driven a coach and horses through the Indian banking system's ability to comply with international norms and Indian laws designed to prevent money laundering and funding of terrorism through know your customer (KYC) rules.
This much is now well known; but what has not been sufficiently highlighted is that simultaneously, a wooden interpretation and application of these rules by banks - even when the Reserve Bank of India (RBI) has allowed sufficient discretion - continue to create problems for low-risk customers, making banking even more inaccessible to poor people.
When the website first came up with startling revelations of what its sting operation on three leading private sector banks had yielded - video footage indicating bank officials brazenly canvassing business that involved handling unaccounted money - two reactions followed. One, the banks lost no time in suspending the officials who were caught on camera. There has, of course, till now been no sign that the bank managements are traumatised over the reality that the sting points to. If rule breaking is so routine, then it must be part of regular business practice, with the tacit approval of such officials' immediate superiors - and it must be within the knowledge of the top management.
Two, both the bank managements and policeman RBI were quick to point out that no actual wrongdoing - acceptance of such questionable deposits - had taken place. The RBI deputy governor in charge of banking supervision went further. After asserting that no "scam" had taken place as there was no transaction, he added, "Let us not unnecessarily downgrade ourself. Our system to prevent money laundering is perfect."
Provisions put in place to prevent money laundering are being routinely violated by banks, the RBI's own investigation has now established. Cash deposits of Rs 50,000 or more are being taken without recording the PAN number; wrong PAN numbers are being given; large amounts are clearly being broken up into smaller amounts to obviate the need for reporting. Cobrapost followed up its expose of private sector banks with a similar operation on public sector banks and found the same reality. Thus, wrongdoing is pervasive across the industry.
Aniruddha Bahal, editor-in-chief of Cobrapost, has pulled no punches in asking for the resignation of the RBI governor and the deputy governor concerned on moral grounds. The RBI brass has kept repeating that no "transaction" has taken place when the report prepared by "their own officers would have told them to the contrary".
This much is now well known; but what has not been sufficiently highlighted is that simultaneously, a wooden interpretation and application of these rules by banks - even when the Reserve Bank of India (RBI) has allowed sufficient discretion - continue to create problems for low-risk customers, making banking even more inaccessible to poor people.
When the website first came up with startling revelations of what its sting operation on three leading private sector banks had yielded - video footage indicating bank officials brazenly canvassing business that involved handling unaccounted money - two reactions followed. One, the banks lost no time in suspending the officials who were caught on camera. There has, of course, till now been no sign that the bank managements are traumatised over the reality that the sting points to. If rule breaking is so routine, then it must be part of regular business practice, with the tacit approval of such officials' immediate superiors - and it must be within the knowledge of the top management.
Two, both the bank managements and policeman RBI were quick to point out that no actual wrongdoing - acceptance of such questionable deposits - had taken place. The RBI deputy governor in charge of banking supervision went further. After asserting that no "scam" had taken place as there was no transaction, he added, "Let us not unnecessarily downgrade ourself. Our system to prevent money laundering is perfect."
Provisions put in place to prevent money laundering are being routinely violated by banks, the RBI's own investigation has now established. Cash deposits of Rs 50,000 or more are being taken without recording the PAN number; wrong PAN numbers are being given; large amounts are clearly being broken up into smaller amounts to obviate the need for reporting. Cobrapost followed up its expose of private sector banks with a similar operation on public sector banks and found the same reality. Thus, wrongdoing is pervasive across the industry.
Aniruddha Bahal, editor-in-chief of Cobrapost, has pulled no punches in asking for the resignation of the RBI governor and the deputy governor concerned on moral grounds. The RBI brass has kept repeating that no "transaction" has taken place when the report prepared by "their own officers would have told them to the contrary".
Failure of RBI supervision to detect widespread wrongdoing in the banking system is not new. As has happened in the past, most notably over the Harshad Mehta scam, it has mounted investigations after all hell has broken loose and can be expected in due course to pin blame and then return to somnolent supervision.
But widespread flouting of KYC rules does not mean that they are a dead letter. One reason why poor and ordinary people find it difficult to deal with banks, thereby falling prey to Ponzi scheme agents, is the paperwork involved. This has worsened with the introduction of KYC norms. But it should not have.
The RBI cannot be blamed for ignoring the problems of ordinary people. To ensure that stringent KYC norms do not come in the way of promoting financial inclusion, the RBI also allows accounts to be opened with less than Rs 50,000 balance or Rs 1 lakh loan by plain introduction the old-fashioned way, with the new account holder's photo and address certified by the introducer or - this is important - "any other evidence as to the identity and address of the customer to the satisfaction of the bank". But bank branches, ever ready to drive away low-value accounts, routinely fling KYC rules in the face of poor and often illiterate would-be customers, opening the door for them to turn to touts.
Even middle-class people are the victim of KYC rules. A utility bill is the preferred address proof for banks. But in a family a spouse, youngsters or the elderly may not have the phone or electricity connection in their name. In case of a person staying with a relative and unable to produce a utility bill in his/her name, the RBI has allowed that "banks can obtain an identity document and a utility bill of the relative with whom the prospective customer is living along with a declaration from the relative that the said person [prospective customer] wanting to open an account is a relative and is staying with him/her". Thus, wooden-headed application of KYC rules by customer-facing bank officials, refusing to exercise the discretion that the RBI vests in them, makes up the entire unfortunate scenario.
http://www.business-standard.com/article/opinion/banks-and-regulator-all-fall-down-113052101131_1.html
No comments:
Post a Comment