Money laundering expose investigation SBI, LIC & 21 others

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May 7, 2013
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Money laundering expose investigation SBI, LIC & 21 others

IN A sequel to the earlier investigation operation in April that exposed leading private banks involved in money laundering, online news portal Cobrapost on Monday alleged that a host of public sector banks, small private banks and insurance companies too were part of the racket.

Code-named Red Spider 2, the new investigation operation targeted SBI, LIC, Bank of Baroda, PNB, Canara Bank, Dhanlaxmi Bank, Indian Bank, IDBI Bank, Yes Bank, Federal Bank, Tata AIG, Reliance Capital and Birla Sunlife, among others.

The government and the Reserve Bank of India (RBI) have ordered inquiries into the allegations. Rajiv Takru, secretary in the department of financial services, has asked heads of the banks to take immediate action. He said a team of three senior officials had been set up to look into the issue.

Cobrapost alleged to have caught on camera officers of 23 banks and insurance companies willing to launder unaccounted money without documentation.

In the April investigation operation, officials of three leading private sector banks, ICICI Bank, HDFC Bank and Axis Bank, were allegedly caught on camera willing to accept and invest cash without documentation. In both sting

proper operations, not a single monetary transaction actually took place.

Officials of SBI, PNB and other banks and insurance companies were caught on tape discussing how large sums of money could be accepted and invested in various investment schemes of the banks.

K C Chakrabarty, RBI deputy governor, told analysts in a conference call, “We are carrying out our independent investigations and issue showcause notices to individual banks where transgressions came to light in our investigations. There have been irregularities, failure to report suspicious transactions and not following the KYC norms. Today, all other public sector banks have come under the same allegations.”

MUMBAI: The RBI said on Monday it will consider all the options available to it to tackle tight liquidity in the market including adjusting banks’ cash reserve ratio, and not just confine itself to bond purchases.

The assumption that OMO (open market operations) will be the preferred tool is wrong, don’t go with that assumption, governor Duvvuri Subbarao said in a conference call with analysts after unveiling the credit policy last Friday.

“We will use all options available to us, depending on how we assess the liquidity situation to be. It could be OMO, it could be CRR (cash reserve ratio), it could be something else.”

The RBI kept banks’ cash reserve ratio (CRR) steady at 4 per cent on Friday while cutting its benchmark policy rate by 25 basis points to 7.25 per cent, the lowest level since May 2011.

Expectations of sustained OMOs rose after Subbarao said on Friday: “If liquidity is a problem, I think OMOs are as good as CRR, if not better.”

To relieve banks from the excessive fund shortage caused mostly due to sluggish government spending, the RBI has bought Rs 1.3 trillion of bonds through its open market operations in 2012-13 financial year that ended in March and many economists project the number at around Rs 1.51.6 trillion in the current financial year.

“OMO expectations went up when the governor made a comment on Friday. Before that we were not expecting OMOs last week because liquidity situation has improved,” said Manish Wadhawan, director and head of interest rates at HSBC India.

On Friday, after the close of markets, the RBI said it will buy up to Rs 10,000 crore of bonds on Tuesday through OMOs.

RBI is in discussion with govt over the auctioning of the government’s cash balances with the central bank

“The OMOs can still continue. The governor clearly does not want to commit to a particular tool at this point and wants to have the flexibility of using the CRR, if need be,” said Anindya Dasgupta, treasurer at Barclays Capital.

Subbarao said that the RBI is in discussion with the government over the auctioning of the government’s cash balances with the central bank.

The government’s hefty cash holdings, now parked at the central bank, may soon be deposited at commercial banks, sources close to decision making told Reuters in April.

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