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Moneylife » Life » Public Interest » RBI money-laundering probe shows cooperative banks as the key facilitator of shady deals

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

Sucheta Dalal & Debashis Basu | 18/04/2013 12:34 PM | 

money-laundering, RBI, cooperative banks, shady deals, Cobrapost,  PAN card, Aadhaar,

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

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Dayananda Kamath k

Dayananda Kamath k 3 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.

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CA PRADEEP AGARWAL 3 years ago in reply to Dayananda Kamath k

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.

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T PARAMASIVAN 3 years ago in reply to Dayananda Kamath k

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

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ashwin bahl

ashwin bahl 3 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 !

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CA PRADEEP AGARWAL 3 years ago in reply to ashwin bahl

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

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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.

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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.

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Arun Mehta

Arun Mehta 3 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"

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