New Delhi/Mumbai: ICICI Bank Ltd, HDFC Bank Ltd and Axis Bank Ltd on Thursday said they were investigating money laundering allegations against them by online magazine Cobrapost.com, while saying that their compliance standards were stringent.
“All employees of the group are trained and required to adhere strictly to the group code of conduct” and other norms, ICICI Bank said in a media release. “We have demonstrated our commitment to this by following a zero-tolerance policy towards any violation.”
Cobrapost.com alleged that ICICI Bank, HDFC Bank and Axis Bank were involved in a “nationwide money laundering racket”. The website said it had unravelled the fraud through undercover investigations at several branches of these banks and their insurance affiliates.
Finance minister P. Chidambaram said he had spoken to two out of the three bank chiefs on the issue. “I have spoken to two of the bank chiefs. One is out of the country. They have assured me that the reports are not correct,” he told reporters in New Delhi.
The news led to a drop in the stock of the three banks in morning trade but they subsequently recovered after the banks said that they complied with norms. Banking analysts said that the allegations didn’t appear to signal serious concerns.
Shares of ICICI Bank ended 2.29% higher on the BSE, after falling 2.37% in the morning; HDFC Bank closed 2.28% up after dropping 3.16% intra-day, while Axis Bank ended 0.51% up, recovering from a drop of 3.51%. India’s benchmark Sensex ended the day at 19,570.44 points, up 1.07%, while the Bankex, the index of major banks, ended 2.08% higher.
“It doesn’t appear a major issue. Even if some employees may have violated some rules, there is unlikely to be any wider organizational issue in our view. We don’t expect any meaningful impact on stocks of these banks,” said Vaibhav Agrawal, vice-president, research, Angel Broking Ltd.
Officials at private banks rejected the allegations, saying they hadn’t done anything to attract regulatory attention.
Anniruddha Bahal, founder and editor in chief of Cobrapost.com, said there were clear grounds for an investigation.
“The regulator should investigate because you cannot wait for people to transgress. Banks are welcome to sue us if they want to but the evidence is too strong. None of the banks have contacted us so far but we have done our job and it is for the relevant agencies to take action,” he said.
Life Insurance Corporation of India managing director Sushobhan Sarkar said, “I am not in Mumbai currently and hence am not aware of what the media reports say exactly but we will definitely take note of it.” LIC owns 7.63% of ICICI, 8.76% of Axis Bank and 4.68% of HDFC Bank, BSE data show.
Officials at the three banks said that they will need to ascertain the veracity of the allegations before taking action.
The process would include checking whether the videos are authentic, whether the people featured work at the banks and whether there have been any transactions that violated Reserve Bank of India (RBI) norms, they said.
“Legal option is a very real possibility at this point in time and our legal team is also looking into it but for that we will have to conduct an internal investigation first. This publication by the website has attacked our reputation and we have to make sure that our employees have done no wrong before proceeding,” an official said. He did not want his or the bank’s name to be revealed because the issue is sensitive.
Rating agencies declined to comment on the matter, saying they would do so only after the concerned authorities examine the matter.
“It is for the concerned regulators to look at these allegations. The RBI and banks themselves are investigating these allegations,” said Rajesh Mokashi, deputy managing director at CARE Ltd.
Naresh Takkar, managing director and CEO of Icra Ltd, said the agency was waiting for details. “It is premature to comment on the matter unless the full facts are known. We are watching the developments closely,” said Takkar.
Government investigators said they were not in a position to act on allegations.
“No competent authority has referred the case to the department. Besides, to register a case under money laundering, first a criminal case should be filed against the entities involved,” said a senior Enforcement Directorate official.
The agency cannot take suo moto action against banks alleged to be involved in money laundering, the official said.
ICICI Bank said the inquiry panel it has set up will submit its findings in two weeks.
HDFC Bank “has a well-defined know-your-customer and anti-money laundering policy which contains procedures and controls to identify and prevent the types of transactions mentioned in the Cobrapost press release”, it said in a media release.
“Segregation of frontline sales activities and back-office operations and post-transaction monitoring processes are in place to ensure independent checks and balances and adherence to all the laid down policies and procedures of the bank,” HDFC Bank said. “Any deviation is viewed very seriously and stringent action is taken both at an organizational and employee level.”
Axis Bank said it “has built a strong customer franchise over the years and maintains high corporate governance standards. Any deviations to such standards are viewed very seriously. Best practices across businesses are followed by the bank and we are confident that all our businesses will live up to the high standards we have set for ourselves.”
Ami Shah, Remya Nair, Khushboo Narayan contributed to this story.