RBI must act instead of simply issuing warnings about mutliple accounts opened under the PM’s pet project

The finance ministry has set stiff targets for nationalised banks to open new accounts under the Jan Dhan Yojana. But RBI governor, Dr Raghuram Rajan, has warned banks to be careful since people may be tempted to open multiple accounts lured by the prospect of a Rs1 lakh insurance cover and Rs5,000 overdraft.

The central bank says that multiple identification options acceptable under the know your customer (KYC) norms make this a possibility. Senior RBI officials have also been warning banks about ‘smurfing’ and ‘money muling’. This is American jargon to describe different money-laundering techniques.

Smurfing means splitting deposits into smaller sums to avoid being detected by regulatory systems. Money muling refers to laundering money through another person’s account (that account being the money mule). But weren’t these, and many other dubious, practices exposed by the Cobrapost’s sting operation? RBI then did a perfunctory investigation that ended in a small slap on the wrist to a few banks and a few officials losing their jobs. Dr Rajan has correctly warned banks to avoid duplication of accounts to meet Jan Dhan targets. He probably needs to pay attention to specific examples of aggressive tactics amounting to mis-selling. For instance, HDFC Bank has been spamming mailboxes using third-party databases (Avrial Technologies), with a mailer which says, “There is no minimum credit score requirement for availing its personal loans.”

It further claims ‘personal loan eligibility in one minute’ even when copious income and identification documents are required. The Bank used similar gimmicks by offering a 20% discount on e-Bay India for purchases in July but failed to meet its commitment when the response was significantly higher than its budget. Several years ago, RBI had treated such a gimmick by Citibank (free air tickets on a designated amount of credit card purchase) as a class action and forced it to pay up. Hasn’t RBI noticed this mischief or does it absolve itself by issuing a consumer charter and general warnings to people?