Saikat Das
moneycontrol.com
The
venomous bite of Cobrapost.com has no doubt dented the reputation of three top private sector lenders:
ICICI Bank,
HDFC Bank and
Axis Bank. They were prompt enough to issue statements promising internal investigations. Shares of the three banks fell initially, but recouped losses to end the day in the green.
Money laundering is way a of converting black money into white through any unscrupulous bank transaction.
Money laundering - a common case among banks?Bankers agree to disagree that the practice of money laundering is quite rampant in the system. The Reserve Bank of India will carry out a formal investigation following this development, they believe.
"It is a matter of reputation for a branded entity," a senior official from a new generation private section bank told
moneycontrol.com on condition of anonymity.
"Any privately held institution of repute will not indulge such practices in a perfectly competitive market. Once you lose trust of people, you are out of business. It is only a stray incident. If the alleged offence is proved, all banks should take stern disciplinary action against those involved and come clean," he said.
Share prices rose! What was brewing?Surprisingly, market did not react much on Thursday. ICICI Bank shares rose more than 2% to close the day at Rs 1,110 while Axis Bank shares closed at Rs 1,353, up nearly 1%. The HDFC Bank scrip ended the day at Rs 649, up about 3%.
Speculations were rife that some market participants were aware of the expose well in advance. In the last four trading session, Bank Nifty dropped 1.19% as against 0.56% fall in 50-share Nifty. Those three banks put together enjoy more than 64% weightage in the Bank Nifty.
"In the last three days open interest in the Bank Nifty spurted 33%, which is not normal. Some traders who short-sold till yesterday bought back those shares as general investors resorted to panic-selling on Thursday. Accordingly, share prices rose due to buying interest," said a trader who did not wish to be named.
Option for banksSome of the middle level bank officials are of opinion that bankers really cannot manipulate much. If a depositor walks in a bank branch with huge sum but pretends of not having any PAN card, the branch manager (BM), according to them, will not bother much to cross examine his source of money digging into details. PAN is an important requirement for KYC – (Know Your Customer) norms.
For a BM, it is potential business opportunity to achieve targets. At the most, he can accept his investments in cash while reporting it to Financial Intelligence Unit (FIU) as “suspicious” transaction. FIU is the government agency which reports the same to Income Tax Department. This is a very common phenomenon.
At ICICI Bank, there is a system of Enhanced Due Diligence (EDD). A branch official has to put in some basic information about a customer who is looking to open an account. Unless EDD gives green signal, account cannot be opened. Top private banks are claimed to be high vigilant about compliance, said a BM based in Western zone.
"People may launder money using banking networks without the knowledge of the bankers," said Laxman Nasarpuri, Partner - Financial Pundits, a Financial Advisory Services based in Mumbai.
"A few isolated cases cannot warrant the branding of the entire banking Industry. These cases should be treated as a part of the corrupt practices. No responsible bank deliberately flouts rules. They are only keen in expanding their business within the permissible framework. For those three banks, chances are remote that the practice of money laundering is rampant."
RBI standIt is natural for the banking regulator to take stock of this kind situation and follow it up. The ministry of financial services too is reportedly keeping close watch on related developments.
"RBI is collecting information. We are in touch with those banks. So far, no notice has been to them," Urjit Patel, deputy governor – RBI told reporters on the sidelines of Exim Bank's Commencement Day Annual Lecture here in Mumbai.
Down the memory lane....The incident is reminiscent of one Tehelka expose in March, 2001, immediately after the annual Budget. It was about George Fernandes, the former Union defence minister in an alleged arms deal. At the then time, share market had crashed.
saikat.das@network18online.com 
