The country’s top three private sector banks — ICICI Bank, HDFC Bank and Axis Bank — said they will investigate allegations by an online magazine Cobrapost.com that their executives at some branches and insurance affiliates had offered to convert politicians’ black money (or tax-evaded income) into white (legitimate income).

Independently, the banks are likely to come under the scanner of the Reserve Bank of India, the Income-Tax Department and the Enforcement Directorate after a pan-India sting operation by Cobrapost.

The timing of the undercover operation could not have been more ill-timed as the Reserve Bank of India has just issued final guidelines for setting up new banks in the private sector.

RBI Deputy Governor Urjit Patel said the central bank is in touch with the banks and is collecting information.

In a press statement, the magazine claimed the branches of these banks accept huge amounts of cash and invest them in insurance products and gold. They also suggest to their clients to get a draft from a co-operative bank and deposit it with their bank.

According to Cobrapost, the branches open an account to route the cash into various investment schemes of the bank. They do so without the mandatory permanent account number or adhering to the know-your-customer norms laid down by the RBI. The branches help clients transfer money abroad through non-resident external/non-resident ordinary account. They also recommend to clients to split the black money into tranches to get it into the banking system without being detected, the magazine alleged.

“The bank branches use ‘benami’ (fictitious names or in relatives/ friends/ associates names) to facilitate the conversion of black money. They also use the accounts of other customers to channel the black money into the system for a fee,” Cobrapost said in its statement.

It further added that the branches allot lockers for safekeeping of illegitimate cash, including special large-size lockers to accommodate wads of cash that could run into crores. It also quotes bank officials caught on tape as saying they routinely email seniors for approval/information on such transactions.

Analysts say it is surprising that the central bank’s inspection of these banks missed these attempts at converting black money into white.

(This article was published on March 14, 2013)
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