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Not absolutely ruling out money laundering, the Reserve Bank of India (RBI) plans to take early action against banks, officials of which were recently caught on video in a sting operation willing to seriously violate banking norms.
Leaving to Parliament the issue of amending the laws to provide heavier penalty on banks guilty of such acts, RBI Governor D Subbarao also dismissed perceptions that the central bank was going soft on the errant banks.
“What action? I cannot tell you because action on this has to be taken at a lower level at RBI. So, it is premature to conclude that RBI is going soft or harsh on this. We have got to follow a process. Just because media is investigating today, we can’t say RBI has to penalise tomorrow, otherwise it is soft,” he said.
The governor said under rule of law, there is a process to be followed and it was being followed. “After the process comes to a close, which I hope is sooner rather than later, if you believe the penalty has been too soft or too harsh, you have a privilege to make a statement,” he said. Referring to the investigation done into Cobrapost’s exposé on some major private banks, Subbarao said the bank managements were issued show cause notices and action would be taken accordingly.
He said RBI alone cannot check money laundering and banks too cannot ascertain the source of money while taking deposits. “Is this money laundering, we do not know...We are not saying there is no money laundering. I am saying whether this money laundering has to be investigated by a much bigger process involving much bigger agencies,” Subbarao said.
When asked about the penalty which could be imposed on erring banks, he said RBI could levy a maximum of Rs 1 crore. “Barclays was penalised $450 million and HSBC was some amount like that. So, we are talking about peanuts here,” Subbarao said, adding it was up to lawmakers on whether to increase the penalty or not.
He was replying to a question on whether the penalty on banks needed to be increased. RBI had launched the investigation into the working of banks following the exposé, which showed some bankers giving suggestions to customers on ways to bypass regulatory norms. Subbarao said following the exposé, RBI carried out a special investigation of the three private banks and 40-45 branches and their head offices.
He said a thematic study of 30 banks was also done to see if the problem was in the whole system or only in certain banks. Subbarao said RBI found irregularities like violation of Know-Your-Customer norms and cash transactions being sliced into smaller amounts, gold sold without following norms and using cooperative banks as conduit for issuing cheques.
The exposé had named several banks in both public and private sector banks and also insurance companies whose officials were shown purportedly willing to violate several banking norms and were prepared to do money laundering.
RBI Guv doesn’t like being called inflation warrior
His focus on inflation has earned him the sobriquet of “inflation warrior” but Reserve Bank of India (RBI) Governor D Subbarao doesn’t like the term. “I do not take that as a compliment,” he told PTI when asked if he took the term as a compliment or criticism. But he went on to add that if people had said the governor and RBI had got the mix between growth and inflation judiciously and drawn a right balance, "I would take it as a compliment".
