RBI launches comprehensive probe into 3 banks

investigation operation reveals money laundering by top banks
March 15, 2013
‘No money laundering’: RBI gives clean chit to ICICI, Axis, HDFC
March 22, 2013

RBI launches comprehensive probe into 3 banks

The Reserve Bank of India on Monday said it has launched “comprehensive scrutinies” covering the head offices and branches of ICICI Bank,HDFC Bank and Axis Bank in the wake of allegations of money laundering and flouting of ‘know your customer’ rules.

Apart from this,the RBI has also undertaken a thematic study in respect of banks that are active in selling gold coins and wealth management products to examine whether there are systemic issues and to plug deficiencies and legal loopholes.

“The scrutinies have been initiated after web portal Cobrapost.com,on the basis of its sting operations across some branches of these banks alleged money laundering and violation of several provisions of the RBI Regulations,Foreign Exchange Management Act guidelines,Prevention of Money Laundering Act (PMLA),etc,” the RBI said in its first official reaction about the investigation. The portal had uploaded some videos on the internet relating to these banks as well as ICICI Prudential Life Insurance and HDFC Life Insurance.

Banking circles said the RBI has brought the head offices of these banks under the probe possibly to ascertain the systemic gaps and plug the loopholes. According to the central bank,the final reports on all the three banks will be completed by March 31,2013,and thereafter further course of action as necessary will be initiated. The maximum penalty that the RBI can impose under provisions of the Banking Regulation Act is Rs 5 lakh. However,in the Citi wealth management fraud case in 2011,the RBI managed to impose a higher penalty of Rs 25 lakh by treating each account as a separate incident.

Wealth management practices in banks have been under the RBI’s radar for quite some time. The central bank had earlier asked some commercial banks to share details of their wealth management businesses following the fraud perpetrated by a Citibank employee in 2011. The regulator had then asked each bank to spell out its policy,procedures and size of the wealth management business that involved banks managing the money of wealthy individuals who do not have the time to do it. The regulator is worried over the potential dangers of customers blindly trusting financial advisors of various banks. The RBI and Sebi have been mulling tighter regulations for wealth management advisors.

Regarding gold coins,an RBI working group on gold had recently raised concern as banks sell retail gold in the form of coins and medallions from the branch network. “If required,under extreme circumstances,we may consider to stop import of gold coins by the nominated banks and their distribution through the branch network of the nominated banks,” the panel had said.


Web portal Cobrapost conducted a sting operation and played the purported video recording of officials of the three banks seemingly agreeing to receive unverified sums of cash and put them in their investment schemes and ‘benami’ accounts. However,no account was opened nor any cash deposited

HDFC Bank has appointed audit firm Deloitte Touche Tohmatsu India to carry out an independent forensic enquiry into the allegations. It has also asked Amarchand & Mangaldas & Suresh A Shroff & Co to examine the breaches of the code of ethical standards

Axis Bank has advised 16 concerned employees to report to respective administrative offices. The banks also set up a senior level committee to monitor and supervise the entire investigation process on a daily basis

ICICI Bank has suspended 18 employees pending an inquiry into suspected money laundering. It has constituted a high level inquiry committee to investigate into the matter and submit its findings in two weeks

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