Cobrapost expose on alleged money laundering cases has no doubt brought many things to public notice. However, there is a need to delve deep into reading beyond investigation reports. Incentive culture is one key reason behind it, says a RBI official.
A series of sting operations by online magazine — Cobrapost — prompted both the Reserve Bank of India (RBI) and the finance ministry to swing into action. The central bank had conducted an investigation and submitted a report. Now, the finance ministry seeks punitive action against banks allegedly involved in money-laundering.
Some of the banks indicted by the expose include HDFC Bank , Axis Bank , ICICI Bank , State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Canara Bank , IDBI Bank , Yes Bank and others.
RBI & FinMin
Of late, the FinMin is believed to have written to RBI asking the reason for not taking action so far.
"RBI will not spare anybody if proved guilty," a senior RBI official told moneycontrol.com on condition of anonymity.
"However, it will not act on other's diktat. It will take its own decision based on its internal scrutiny and investigation. Banks have committed some procedural mistakes. It is very difficult to identify the element of criminality. It is the incentive culture, which lures bank managers to go any extent. Incentives, be it in private or public sector banks, should not be given for deposit collections only but for managing non performing assets and expanding credit as well," he said.
RBI investigation report
According to CNBC TV18, the RBI may revise penalty for Cobrapost violations. It is currently at Rs one crore. Banks have been served "show cause" notice as to why they should not be penalised. Talks of capping cash investment in third party insurance products are also going on. There may be a common code on Know Your Customer (KYC)/ anti-money laundering guidelines.
Incentive & worries
It is widely perceived that private sector banking officials are offered huge incentives to attain business targets. However, state-owned banks too are not lagging behind. Incentive culture has slowly crept in public sector banks, which are facing tough competition.
"It was actually started by SBI, which offers exotic family tour packages to Singapore or Indonesia once an official achieves his/her business target. Now-a-days some big lenders practice the same," the RBI official said.
In many cases, it is learnt that business developments at the cost of incentives do not happen in real terms for the entire industry. A branch manager may obtain bulk deposits from a single customer. With his/her transfer to another location, he will shift the same customer in the new branch. It applies the same if he changes job to another bank. Consequently, deposits are not expanding as a whole.
"Had the incentive culture helped growing the industry, the average deposits would have grown leaps and bounds. It is only diversion of deposits," he said adding that elements of unaccounted money and funds for criminal activities are two other major factors to worry for.
Ill-gotten money, be it by way of bribes or committing crimes, if laundered through banking system, will wreak havoc especially in an emerging economy like India. RBI is quite concerned about it.
"Name dropping is a big issue in India. Even big fishes when get money through unscrupulous means call their cohorts sitting in large institutions to park their sum in different deposit schemes in smaller denominations," said an industry expert who did not wish to be identified.
Banks do not find anything wrong in giving incentives to efficient staff, who bring business. The "unnecessary" commotion is rather injecting an element of "fear psychosis" among managers (at the grass root level), who no more will work freely. It may hurt their performance as well, top lenders are of opinion.
"You mean to say every thing is going wrong in the system," was the curt reply from a CMD of large state-owned bank as against a moneycontrol query.
"If it is so, then change the system, do not blame banks. I still fail to understand what fraud exactly has taken place. In colloquial term, a bank manager may resort to some loose talks. It does not mean, he will apply the same," he said adding that bank managers are not expected to greet customers with a volley of intricate questions.
HDFC Bank stock price
On November 27, 2015, HDFC Bank closed at Rs 1078.65, up Rs 14.10, or 1.32 percent. The 52-week high of the share was Rs 1127.90 and the 52-week low was Rs 916.45.
The company's trailing 12-month (TTM) EPS was at Rs 44.30 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 24.35. The latest book value of the company is Rs 246.01 per share. At current value, the price-to-book value of the company is 4.38.
READ MORE ON RBI, Reserve Bank of India, Cobrapost, sting operations , Finance Ministry, FinMin, HDFC Bank, Axis Bank, ICICI Bank, State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, IDBI Bank, Yes Bank, SBI, PNB, BoB, Saikat Das, RBI investigation , Banks
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