Cobrapost sting: RBI gets stricter on money laundering, banks ask customers to resubmit IDs

MUMBAI: If you get a phone call from your long-time banker asking you to resubmit your name and address proofs, don't be surprised or irritated. It is the fallout of the Reserve Bank going beyond the cobrapost.com expose on unethical practices of banks, forcing them to go back to the drawing boards to weed out bogus and wrong documentation that allowed many people to open accounts and launder money.

RBI, which probed the cobrapost.com charges of bank staff helping in tax avoidance and money laundering, has stumbled upon incidents beyond what the sting operation revealed. It has widened the probe to cover social media such as Facebook and Twitter. Also, the central bank is asking banks to submit all adverse reports about them in print to probe into specific events. "Although RBI audits and supervises banks, it wants to ensure that it does not receive any more shock or surprises," said a banker who has received a letter from RBI seeking details of complaints in other media.

The RBI probe found that staff at ICICI BankBSE 2.30 %, HDFC BankBSE 1.92 % and Axis BankBSE 3.89 % may have violated KYC norms and helped clients evade taxes.

"There are aberrations that have been discovered," said Rajiv Takru, secretary, banking services. These will be addressed both in terms of systemic factor and in individual cases." The banking regulator has started conducting random audit of banks on whether they are following KYC norms for opening bank accounts. While private banks, particularly the new private banks, have started conducting fresh round of KYC, state-run banks may also begin soon.

RBI has also asked banks to provide information on 'fraud and scam-related statements' they have issued to media, and suggested tightening employees' incentive structure to prevent them from going overboard in selling financial products.

"Audit report has come. On the basis of the report, banks would be asked for their version. Once that comes in, we will take a decision," said Takru after a meeting with RBI deputy governors KC Chakrabarty and Anand Sinha.

Source :  http://economictimes.indiatimes.com