Why is RBI rushing to defend banks exposed by Cobrapost?

There is sufficient evidence where bank relationship managers emerge out of clients’ residences with suitcases full of currency notes counted on the bank’s notes counting machines. What more evidence is the RBI waiting for?

Reserve Bank of India (RBI) deputy governor Dr KC Chakrabarty’s bland statement yesterday in seeking to downplay the sensational 14th March exposé by the online magazine Cobrapost on the sidelines of a bankers event on “Risk based Supervision”, seems to be the only official reaction from the banking regulator.


The deputy governor seems to be convinced. He said, “No scam has happened... Allegations don’t mean that KYC norms have been flouted... If KYC is made more stringent then the opening of bank accounts for the finally excluded may become tough... Allegations do not mean flouting norms. There is not a single transaction (of money laundering as alleged by the exposé)...These are transactional issues that have nothing to do with money laundering (!)... I am not saying that there is no problem. I know there is a problem in the system (thank God for conceding!)... RBI’s Financial Statement Reports highlight serious concerns over bank branches selling gold coins, mutual fund instruments, and insurance. RBI has undertaken a thematic (whatever this means?) studies of banks that are active in selling gold coins and wealth management products… We cannot take action on allegations. We go by evidence.” 


Come on Mr deputy governor, what more hard evidence do you want other than the unedited footage of video tapes? Surely you are is not waiting for another Harshad Mehta or CR Bansali types to put on actual laundering acts to present you, the regulator, with harder evidence of bank relationship managers emerging out of clients’ residences with suitcases full of currency notes counted on the bank’s notes counting machines!


For the kind information of the RBI, the Mumbai-based daily Free Press Journal in a boxed article, in its business page, has listed some of the most common the modus operandi practiced for money laundering:


a.         Accepting huge amounts of cash to invest in insurance products and gold.

b.         Opening accounts to route cash into various investment schemes.

c.         Doing it even without the mandatory PAN card or adhering to KYC norms.

d.         Making use of benami accounts to facilitate the conversion.

e.         Splitting money into smaller tranches to circumvent detection.

f.          Using of accounts of other unsuspecting customers to channelize black money into the system with an incentive percentage of fees.

g.         Investing black money in multiple instruments in different names, not necessarily drawn from the family.

h.         Allotting of safe deposit lockers, including special large sized ones, for parking crores of illegitimate large value currency notes.

i.          Relationship managers personally calling on the residences to collect cash bringing along note counting machines to take the deal forward.

j.          Encouraging the misuse of Income Tax Form 60 to state that they are not tax assesses and/or do not have PANs.

k.         Helping clients route black money parked abroad through NRE/NRO accounts or through other means other than normal banking channels.

If anyone in the banking regulator claims not to know any or all of the above, surely s/he is not fit to be to occupy the position!


(Nagesh Kini is a Mumbai-based chartered account-turned alert-concerned citizen activist. He was for long a RBI panelled bank statutory auditor and extensively practiced FERA/FEMA.)

Dayananda Kamath k
9 years ago
when rbi did not initiate action banks for 3rd party gold imports,which it banned after 5 years of my reporting these transactions as an internal auditor of a nationalised bank about how banks are violating fema, banking regulation act as well as import export policy. avoidance of sales tax in rajasthan state on gold import business.literal fraud in opening l/c in its own name and releasing goods without honouring its l/c obligation and allowing the bank to remitt the amount after time barr of debts. issue of intternational debit cards how it can be used for money laudnering etc. i informed them that it is the duty of rbi as regulator to protect the banks but not at the cost of coutry and public good.but no action so far. even the matter brought to the every authority that matters upto the chif justice of india but no action so far from any of the authority.
Veeresh Malik
9 years ago
I think people from the IRS (Income Tax as well as C&CE) need to work for atleast 2 years in private and public banks in every 10 years of their tenure to really understand the way our banks are short-circuiting the system. In addition, similar options should be given to budding financial journalists too. The way ATMs are being used to further short the systems is yet another aspect which has not been properly covered or safe-guarded.
Amit Sengupta
9 years ago
Completely agree with your views. And why a Dy. Governor and not the Governor of RBI himself. We expected a comment from him. The Dy. Governor stated that it does not need a sting operation to understand that black money is in circulation but nobody asked what he as Dy. Governor has done about it in all these years. Why has he and the likes have been harassing the honest tax payers through new KYC norms, CBDT guide lines etc avery other day. I know that I am diabatic and I follow a life style strictly as advised by my doctor. I do not sit at home and shout that I need no test since I know that I am diabetic. A terrible remark from a beurocrat and may be an attempt to cover up the whole issue, stating 'Its a small issue- life will go on'.
Amit Bhargava
9 years ago
Allegedly, the regulator is hand in gloves with the defaulters and sees no reason in acting against them.

Heard of the saying? Chor Chor Mausere Bhai...
9 years ago
Gopalakrishnan T V
9 years ago
Even the continued persistence of High level of Non performing loans can also be construed as Money laundering as many of the defaulters are well off. Many transactions in banking go unnoticed by the Regulators as it is impractical to verify each and every transaction. There are concurrent auditors, banks own internal auditing, and statutory auditing apart from RBI's supervision. With all these banks violate rules and regulations and help important customers in all possible manner.Banks indulge in all sorts of irregular transactions and defending them without being subjected to detailed checking as if they are all holy cows only speaks of arrogance and lack of concern for knowing the ground realities and taking corrective action.
Replied to Gopalakrishnan T V comment 9 years ago
9 years ago
This is what Wiki says regarding laundering "Money laundering often occurs in three steps: first, cash is introduced into the financial system by some means ("placement"), the second involves carrying out complex financial transactions in order to camouflage the illegal source ("layering"), and the final step entails acquiring wealth generated from the transactions of the illicit funds ("integration"). Some of these steps may be omitted, depending on the circumstances; for example, non-cash proceeds that are already in the financial system would have no need for placement.[2]
Money laundering takes several different forms although most methods can be categorized into one of a few types. These include "bank methods, smurfing [also known as structuring], currency exchanges, and double-invoicing".[3]
Structuring: Often known as "smurfing", is a method of placement by which cash is broken into smaller deposits of money, used to defeat suspicion of money laundering and to avoid anti-money laundering reporting requirements. A sub-component of this is to use smaller amounts of cash to purchase bearer instruments, such as money orders, and then ultimately deposit those, again in small amounts.[4]
Bulk cash smuggling: Physically smuggling cash to another jurisdiction, where it will be deposited in a financial institution, such as an offshore bank, with greater bank secrecy or less rigorous money laundering enforcement.[5].
I think the word laundry means to clean and as far as my knowledge goes conversion of black money to white comes under this. It is not necessarily to be out of Criminal activities. Someone, please send a dictionary to the Bengali Babu
nagesh kini
Replied to T PARAMASIVAN comment 9 years ago
When the RBI cannot accept the basic funda and all that is going on under their noses and the Dy. Gov. shoots his mouth off with inane statements, the Wiki methodology of "placement", "layering" and "integration" will certainly appear all Greek or in today's world Cypriot, and Latin to the RBI.
The Governor Dr. Subbarao, rightly pointed our yesterday "I cannot, at this time, say or make broad, sweeping statements that there are no transactions taking place at all." Will Dr. Chakrabarty get his message straight and clear?
Replied to nagesh kini comment 9 years ago
Mr Subba Rao has had a nice dig at his DG. But he keeps putting his feet in his mouth. Its a pity that such people get elevated
9 years ago
Bharat Joshi
9 years ago
The watchdog can not accept it is sleeping and all this happened under its watch. Few will get transfer orders and then business as usual. Beware of HDFC as it is the most sanctimonious and have holier than thou attitude.
Suiketu Shah
Replied to Bharat Joshi comment 9 years ago
Absolutely sir.HDFC Bank's Mumbai head office directors are so criminal and nasty they use bad and threatening rough language with customers when seemingly gullible customers donot fall for their loss-making products like insurance,etc.
9 years ago
It is intriguing that RBI Deputy Governor Chakrabarty is giving a ‘mixed’ response on a vital issue. Large-scale Financial Inclusion drive is about much smaller accounts and actually, KYC norms should be more stringent in case of bigger accounts(both deposit and credit). Statements like ‘There would be always some black money in the system and we don’t require sting operation to show that’ are vague and do not make anyone wiser.
Vineeth A Kumar
9 years ago
Dear Mr. Nagesh Kini,
Questions you have raised reflects your intensive 'digging' done to at least see the tip of the ice-berg. Short span of 19 yrs service was with LI - Alternate Channel.
I was fortunate that Piramal kicked out entire kerala...big talking leaders were the first ones to go with the begging bowl
Had I been in pharma, maybe i would be comfortable but, that's a sick world - different and info not useful for a common man, but yes, for Doctors. Its the LI sector which taught me "The Power of Now"...by hook or by crook just get the job done..no matter what or PIP...
RM/SM/BM and all treated like dogs by their bosses, who are In-capable of sitting before you.
These RM's are guilty of obeying their bosses for fear of losing their job.its the top management of respective banks who set a culture and environment of mistrust & non transparent aura which breads to office politics & Kerala CRAB Mentality. RBI can never be given a clean chit..may be taking up wavering steps or placing the bank heads on notice.

Two points mentioned by you:

1. Using LI or other methods to wash it clean...spot on. IRDA guidelines of KYC must for any amount above 49,999/=...10 Lacs cash, client had only Voters ID but by evening its done (IDBI Bank was not in CobraList) As per my info Copy of 6 mnths bank report, PAN, Standard Age proof and address proof are essential to login this policy...this person had only voters ID..How?

2. Providing lockers in banks itself - I am not sure but heard this lot of times...There are many types of a/c in all the banks..Saving, Current, Company A/c...etc...what I'm interested to know is are there something called Secondary a/c which does not reflect in the bank statement...?

Roamers and myths are turning into realities..

What I've mentioned is true. Beyond this, I fear for my family.
MK Gupta
9 years ago
Very suggestive of the complicity involved.
Babubhai Vaghela
9 years ago
RBI as also Banks & Finance Ministry must pro=actively disclose their investigation reports on their website for people at large to study them, draw own inferences and use them for legal recourse or otherwise.
Suiketu Shah
9 years ago
1)How can HDFC Bank's RM make comments saying the bank is open in the night to deposit black money without clear instructions from tghe head of HDFC Bank?

2)Aditya Puri's comments saying they wl take strict action against "loose talk" of their employees is laughable.Employees have no guts or rights to accept such large black money is it is not instructed to them by seniors.
Anil Agashe
9 years ago
this Dy Governor has a tendency of shooting from the hip. He has done it earlier as well. I think it's time to say good bye to him.If large cash deposits in Saving account are checked it will reveal a lot. Freeze all large lockers and see the bounty the govt will get, they can give exemption from IT to individuals for one full year of not more!
when banks are run by marketing principles applicable to FMCG sector this is what you will get.
Relationship managers area joke. They are fresh MBAs and Pvt banks don't train them in banking but train only in soft skills. Anyone who has no knowledge of basics will mis sell because that is what soft skill trainers have trained him for!
Suiketu Shah
Replied to Anil Agashe comment 9 years ago
Sir,HDFC Bank's MD has gone on a massive PR exercise in the press since Cobragate.A popular Mumbai daily carried a piece about him 5 days ago of how he does not carry a mobile,wallet and watch and how great that is!As if the Indian public is gullible enough to believe this!
Replied to Anil Agashe comment 9 years ago
Excellent comment sir. Very well said.
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