Citizens' Issues
RBI money-laundering probe shows cooperative banks as the key facilitator of shady deals

The Reserve Bank of India’s investigation into tainted private banks which were caught in a Cobrapost sting operation, has now spread to cooperative banks which appear to be the main conduit for the private sector banks to launder money

While the banking secretary announced last evening that action will be taken against the three private sector banks that were caught laundering money in the Cobrapost sting operation, Moneylife has learnt from banking sources that the trail of the money laundering investigation is leading up to a large number of cooperative banks across the country, who first accept cash and introduce it into the banking system.

 

Banking sources tell us that scores of cooperative banks have been found literally acting as a back-office for initiating the conversion from black money to white money. They happily accept fake PAN cards and dodge detection by opening hundreds of accounts without proper KYC with each deposit carefully under Rs50,000. The money is then transferred to the larger private banks, through a prior arrangement, allowing these ‘successful’ Indian private banks to maintain a clean image.

 

It is not surprising that cooperative banks are in the thick of dirty banking operations. They have been in the heart of every major scam over the past two decades. In the 1992 securities scam Mercantile Cooperative and Bank of Karad were found to be involved in issuing false securities and had to be closed down. Then too, multi-national banks such as Standard Chartered systematically ensured that fake Banking Receipts (BRs) were passed through the smaller banks, in order to protect themselves. However, they were caught when the multi-disciplinary Janakiraman Committee began to investigate their actions with a fine-tooth comb.  Again in the scam of 2000, Ketan Parekh was found to have used Madhavpura Cooperative Bank as his own personal property in diverting cash Rs800 crore to support his speculative positions. The bank has collapsed causing losses to tens of thousand ordinary depositors and other banks.  Cooperative banks were at the centre of the Home Trade scam too in 2001 Rs600 crore were found to have been swindled from more than 25 cooperative banks —13 of them in Maharashtra and 12 in Gujarat.

 

The reason cooperative banks have repeatedly been at the centre of scams is the shady system of dual regulation, under which both Registrar of Cooperative Societies (RoCS) and the RBI are supposed to be regulating them. RoCS officials say that the RBI does not look closely at these banks, while the RBI says it waits for government recommendations to act as the State's Cooperatives Department has its auditors on the boards of the banks. The primary reason for this poor scrutiny is that most cooperative banks are set up and controlled by powerful politicians.

 

Banking sources in several banks, other than the three private banks which were part of the Cobrapost money laundering sting, tell us that the RBI has been asking detailed questions. They estimate that nearly two dozen banks may be under the RBI scanner, based on the questions they have been asked to answer. However, the banking secretary has so far spoken of an RBI report that only covers the three banks—Axis Bank, HDFC Bank and ICICI Bank. We also learn that the banking regulator has already found large instances of systematic mis-selling of financial products, dubious gratification of sales agents and evidence of the money laundering unearthed by the sting operation.

 

Moneylife has consistently pointed out that driven by high commissions, an army of bank relationship managers are systematically targeting vulnerable segments such as women and senior citizens through misrepresentation and deceit. The latest example of this is the cheating by IndusInd bankers of a 79-year old man in India with an ailing wife, which Moneylife exposed a few days ago, (Mangelal Sharma gets his Rs7 lakh back—another Moneylife victory). A strong Moneylife campaign of naming and shaming has finally borne fruit and last night the bank officials went to the senior citizen’s house and returned his money. The RBI is aware of this menace and hopefully it will do something about this, too.

 

Moneylife  has also been categorical that dubious KYC practices are not limited to three banks—an investigation would reveal that most foreign banks, private banks and even large public sector banks have been indulging in gross mis-selling at one end and dodgy practices to help powerful politicians launder black money at the other end. At the heart of the fake KYC racket is the proliferation and easy availability of fake PAN numbers. The Income Tax department, riddled with corruption is a part of this mischief.  The Aadhar Card, which is already proven to be full of holes has now been added to the array of dubious and easily faked documents that allow people to exploit the system. On the other hand, honest taxpayers continue to be harassed and exploited.

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COMMENTS

CA PRADEEP AGARWAL

4 years ago

As told before My Dear All are hand in glove, even higher authorities, so nobody bothers about any inspection/audit reports/guidelines.

Dayananda Kamath k

4 years ago

in ahmedabad in a nationalised bank in gold banking. gold used to be delivered against the pay order of the coperative bank.which was issued by the bank people of coperative bank in the nationalised bank itself. without any money being paid to the co perative bank. since it will come in clearing after 2 days the money used to be arranged by then to honour the payorder. by the sale proceeds of the gold presumably. this was being done in violation of internal guielines of the nationalised bank. it was reported under internal inspection report. but no action was initiated. rather the persons involved are promoted. what is rbi inspector doing when inspecting the bank.are they not supposed to go through these reports.

REPLY

CA PRADEEP AGARWAL

In Reply to Dayananda Kamath k 4 years ago

As told before My Dear All are hand in glove, even higher authorities, so nobody bothers about any inspection/audit reports/guidelines. Actually all are rotten eggs. If you look at it minutely.

T PARAMASIVAN

In Reply to Dayananda Kamath k 4 years ago

RBI Inspectors are a class of their own. Many of them are busy buying things cheap at low cost / no cost whenever they go for Inspection. They must have been busy buying Gold at no / low cost through the Branch

ashwin bahl

4 years ago

We can add to Arun Mehta's'
You are clean till you caught, and if you are caught you are innocent til proven guilty, and that happens once in a while. That is the mantra of today everywhere in the country !

REPLY

CA PRADEEP AGARWAL

In Reply to ashwin bahl 4 years ago

I ought to agree!
There is a saying rishwat lete pakro jaao rishwat de kar chute. What Ashwin has said is correct hitting the nail in the head-let the case linger on in the courts

S BHASKARA NARAYANA

4 years ago

I pose a question to the reader of this comment. If you are really an honest Tax payer and being crushed by the ramificatons of the abovesaid scams, why do'nt you support common good cause done by the money life by expressing your views, thus in large number by the viewers.

REPLY

CA PRADEEP AGARWAL

In Reply to S BHASKARA NARAYANA 4 years ago

There are not one several thousand readers I feel, and every body says they support common good, down by MLF, but I feel expression is one thing which is desired of them, can say, it but will not jot it down.

Arun Mehta

4 years ago

All these are "Below the line activities(Ad agency jargon) for the three Banks.All these and several other Bankers believe in the maxim-"You are clean till you caught in such activities,with a valid evidence"

Ravindra

4 years ago

It was an open secret. Only RBI discovered it so late.

Rati Kriya

4 years ago

Unrealistic Targets to the marketing team has let the system down. There is an instance of one of these 3 banks in whose branch, accounts of hapless demat account holders were opened with PAN cards procured through dubious duplicate application. The unsuspecting brokers based on the diktat of acceptance of bank pass book as proof of address opened online trading account, took a bank cheque as proof of existent bank account - the cheque passed; then funds were transferred to this acccount out of sale proceeds of the shares. What an operation - demat account holder and broker suffered; when the bank came to know of the activity they suspended the marketing executive - reportedly. No one complained against them and they are touching dizzying heights.

REPLY

CA PRADEEP AGARWAL

In Reply to Rati Kriya 4 years ago

Actually everybody has increased their expenditure to unrealistic levels and they have to cover those by income hence again targets raised to such proportions that they ultimately becomes a problem, so doing all types of business to meet the targets and seniors are keeping their eyes and ears closed

CA PRADEEP AGARWAL

4 years ago

Actually, whole system is stinking like a rotten fish. Only due to some intelligent and true people we are surviving or survived.

CA PRADEEP AGARWAL

4 years ago

yeah, agreed because cooperative bank's are basically governed by politicians so any thing can happen there

manoharlalsharma

4 years ago

RBI,SEBI,IRDA,CAG are doing good service to AAM AADMI but I do not understanding why no reguletor for HOUSING SOCIETIES?
Litigations depend on JTR and there after only concerned state minister who listens only after intervenning throgh HC/COURT and than on the bargain of the parties concerned who pay more attrects order of the minister and again to court.Like marry go around

REPLY

Dayananda Kamath k

In Reply to manoharlalsharma 4 years ago

do you want one more regulator so that they can pass the buck.when they want to protect some one.and pounce alltogether when somebody want to be booked. in the sarda case itself you can see how many agencies have suddenly become active.

CA PRADEEP AGARWAL

In Reply to manoharlalsharma 4 years ago

They are a bundle of one of the biggest corruption in real estate.

Sandeep Consul

4 years ago

Don't ever expect "prudent financial advise" from the bankers. I have hundreds of ex-students working for various Banks. Whenever I meet them their common complaint during our candid conservation as to how they are doing in their job, is that we are nothing more than "salesman". One of the Vice Presidents of a Foreign Bank said that his job is that of an insurance agent. They are given very aggressive targets which have to be fulfilled by hook or crook so that Banks can put up a good show on the quarterly results day. Foreign/Priavate Banks enter in to tie ups at National Level with various MF/PE/Realty/structured products/Insurance for fat margin products and these are aggressively pushed through various branches. Some of my ex students come to sell these products without having even 5% knowledge of the product features. They say we are just asked to cram the glossy one pager and anyways we are spendig 95% of time in sales so how do you expect us to know the nitty grittys or the financial soundness of the product. On being curious as to how they are able to sell these High Margin(Bank Friendly-Customer Unfriendly) products, they say their targets are the neo richs who are invited for the cocktails/dinners/other programmes by the banks. They are superficially explained fancy schemes with fancy return projections accompanied with fancy brochures. Most of them end up signing on blank forms without really undersatnding the product. In next few months about 10% end up complaining about the product/regular deduction from their account out of which the noisiest 2-3% end up being refunded their money(if possible)/(otherwise)compensated in some form. Rest is all Bank's gain.

We will see in next few months that nothing much will come out of Cobrapost's sting also. At the most RBI will warn the Banks / fine them few lakhs (peanuts for Banks with hundreds of Crores of Profits), Banks will go slow on this mode and find some other channel to fool gullible people and make thousands of Crores for next few years till some other sting operation. All the data is out there to see how much Banks have made in selling third party products in last few years, literally thousands of crores. The fine they will pay after years of misselling will not be even 0.1 % of what they made in the last decade.

Just to give an idea of the amount of Commission paid to these Banks- AMFI site lists commission paid for FY 11-12 for Mutual Funds -
CITIBANK - 12,901 Crore
HDFC BANK- 13,057 Crore
HSBC BANK - 15,398 Crore

If you include Insurance Commission also (which will be many times more than this) you can get clear idea as to why Banks are more interested in being third party sellers rather than traditional Bankers.

With high profile people at the helm of these Banks who are on various channels and on covers of financial newspapers on a daily basis RBI is in no position to take any meaningful action at all and will close the enquiry with smartly drafted (carefully worded) report with cosmetic penalties.

Talking to RM of a Bank will reveal much more than years of useless/superficial audit by SEBI/RBI about misselling of financial products/flouting of all the prudent Banking Norms.

REPLY

CA PRADEEP AGARWAL

In Reply to Sandeep Consul 4 years ago

Do not understand where is banking industry going?

ashwin bahl

4 years ago

Ab kya hoga ? Time for cover up and files will go missing? Board Of Directors kahan hai ?

REPLY

CA PRADEEP AGARWAL

In Reply to ashwin bahl 4 years ago

Sab ghar main baith kar note gin rahe hain.

ram

4 years ago

The whole system of co-operative banking system should be scrapped. If RBI has laid down stringent conditions for issue of new bank licences it is surprising that co-operative banks are being allowed to be opened and flourish with the ownership controlled by politicians. Is this not a blot on the banking system in India. What has the FSLRC mentioned about this in their huge report.

REPLY

CA PRADEEP AGARWAL

In Reply to ram 4 years ago

Who is RBI? Finance Ministry is calling the shots on instructions

CA PRADEEP AGARWAL

In Reply to CA PRADEEP AGARWAL 4 years ago

Further, whatever little powers RBI has they want to prune it.

nagesh kini

4 years ago

Business Line 19/4 headline screams - Cobrapost expose:Audit report finds "aberrations" GOI Finances Services Secretary echos the statement of RBI Dy. Gov HR Khan.
FS Secretary Rajiv Takru -
"Issues will be fixed at local level and action taken at individual level."
How does this match with DG Dr. Chakrabarty's - "These are transcational issues which have nothing to do with money laundering."
Both these mumbo-jumbo appear to be Greek and Cypriot (in the present context better than 'Greek and Latin')even to hard core finance professionals!
Can some one more knowledgible please clarify as to what they seek to convey in layman's language?

REPLY

T PARAMASIVAN

In Reply to nagesh kini 4 years ago

Nothing but cover up. This DG is the worst of the lot. Has no idea about money or Banking. He shoots his mouth off unnecessarily. Someone should ask him to google the word money laundering and then he will know. People like him have been promoted only to do cover up operations.

Arun Mehta

In Reply to nagesh kini 4 years ago

This three Banks which have the honor of being singled out by RBI for the act of "Aberrations" have also won several awards for being "Ethical" Banks/or "Bank' of the Year Awards from several 'known' and' Not so Known' organizations.When a 'sports person' is found positive on 'dope testing' much later after winning an award,he or she is morally forced to return the award .Can we expect like wise some ethical action here too.

T PARAMASIVAN

4 years ago

RBI is aware of these shady accounts in Co Op Banks. Has RBI taken any action ? Until the rot sets in, it will keep mum and one day cancel the license. RBI does not want to take on the powerful politicians who are behind most of the Co Op Banks. In Bangalore, RBI is aware that everyday 100s of cheques issued by LIC are purchased by Brokers and these third party cheques are collected through co op Banks. No wonder we see PANCARD ads in almost all the trees . It is so easily available . Rate depends upon the address proof availability. Corruption rules the contry

REPLY

ashwin bahl

In Reply to T PARAMASIVAN 4 years ago

spot on !

Arun Mehta

In Reply to T PARAMASIVAN 4 years ago

Perhaps ,it's time Co-Op banks particularly the ones owned by political heavy weights to have separate division called "Personal" Banking to consolidate such activities.

Arun Mehta

In Reply to T PARAMASIVAN 4 years ago

Perhaps ,it's time Co-Op banks particularly the ones owned by political heavy weights to have separate division called "Personal" Banking to consolidate such activities.

India’s exports fall 1.8% to $300.6 billion in 2012-13

The zero-duty EPCG scheme to promote exports has been extended beyond March 2013, and will be available for all sectors, commerce minister Anand Sharma told media persons

Commerce Minister Anand Sharma today said that India’s exports during 2012-13 declined by 1.76% to $300.6 billion.

 

He said that the trade deficit during the fiscal has increased to $190.91 billion compared with $183.4 billion in the previous fiscal.

 

The zero-duty EPCG scheme to promote exports has been extended beyond March 2013, and will be available for all sectors, he added.

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SEBI directs cos to redress investor complaints within a month

“All listed companies are required to redress the grievances of investors and inform them within 30 days of the receipt of the complaints,” the market regulator said in a circular on Wednesday


Stock exchanges and listed companies have to redress investor complaints within a month of receiving them and their failure to meet this directive could attract penal action.

 

In a circular, SEBI (Securities and Exchange Board of India) Wednesday said: “All listed companies are required to redress the grievances of investors and inform them within 30 days of the receipt of the complaints.”

 

The details of investor grievances relating to companies are available on the webpage of SCORES, which can be accessed through their respective user ID and password.

 

The regulator said the companies which are yet to get SCORES user ID and password are required to send their details in a manner specified by SEBI and obtain the same.

 

“Failure to obtain the SCORES user ID and password within 30 days of issue of this circular would not only be deemed as non-redressal of investor grievances but also indicate wilful avoidance of the same,” SEBI said in the circular.

 

The regulator said a company could be liable for penal action if it fails to file Action Taken Reports (ATR) under SCORES within one month of receiving them.

 

SCORES was launched by the regulator in June 2011. It enables investors to lodge, follow up and track the status of complaints on the website.

 

The system also enables market intermediaries and listed companies to receive complaints online from investors, redress these and report the redressal measures online.

User

COMMENTS

V K JAIN

4 years ago

Well, will SEBI fix a similar time limit for ITSELF to redress if the company fails to do so in 30 days? And make the entire process transparent, with access to investors and their associations?


Virendra Jain
President
Midas Touch Investors Association

NSriramamurty

4 years ago

Good Start by SEBI, for Investors Grieavace Redressal.

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