For hundreds of thousands of bank employees who work in branch offices, India has turned into Ramgarh of G.P. Sippy’s Sholay while cobrapost.com’s associate editor Syed Masroor Hasan has become their Gabbar Singh. Why does he strike such fear in them? Hasan—posing as a relative of a fictitious politician—is approaching bank managers for ways to change the colour of money from black to white. Gabbar Singh led a group of bandits in looting and killing people in the 1975 Bollywood blockbuster while Hasan is a journalist who undertakes sting operations. In the movie, Gabbar Singh brags to his gang that mothers in Ramgarh and its surrounding villages cajole their children to sleep by warning that, or else, he would come and get them. On the contrary, bank employees are keeping their eyes wide open and checking every document to make sure they are following the know-your-customer, or KYC, norms.
On a more serious note, Cobrapost’s latest revelation has implicated 12 public sector banks, seven private banks and four insurance companies—both public and private—in the alleged money laundering racket. All told, these entities account for about three-fourths of the Indian financial system. What does this mean? Is the entire financial system rotten? The market does not believe so—at least the movement of bank stocks in the past two days demonstrates investors’ scepticism about the Cobrapost findings.
The reason behind the market not taking the sting operation seriously could be the hype surrounding the revelations that blurs the fine line between tax evasion and money laundering. People have been continuously looking for ways to keep their unaccounted money safe and banks and insurance companies have been extending a helping hand to them to do so when they are reasonably sure that the money is not being used to fund terrorist activities—one of the prime reasons why anti-money laundering rules were put in place.
For most branch employees, this is as natural as going to a dentist for treatment of a toothache. Offering a locker to keep money in it is also a normal practice as what a customer keeps in her locker—bread, butter or money—is none of a bank’s business.
In all probability, Cobrapost will have a third episode of its sting operation covering the rest of the banking and financial system and more instances will come to the surface, but the market may once again shrug off such findings as there is nothing unusual about them.
This is not to condone what banks have been doing but to illustrate the Indian psyche—we are used to certain things and certain practices are taken for granted even though they are not in sync with the spirit and letter of the law of the land.
Although the sting operation has tended to sensationalize things, it could lead to a purge in the entire system. Indeed the Reserve Bank of India (RBI), which doesn’t like to talk too much about the probe that it set in motion after the allegations were first made, has initiated steps to streamline wealth management offerings by banks, apart from the sale of mutual fund and insurance products along with the incentives associated with these. One very critical step is the proposal to segregate marketing and transactional banking.
The noise on the sting operations should also encourage the banking system to do some soul searching and change some of the old practices, beyond branch banking and the sale of financial products.
At times, bank executives themselves earn a bit of money which they cannot account for. For instance, the chief executive of a public sector bank is entitled to a $500 daily allowance or per diem for overseas trips irrespective of the fact whether this is spent or not. For domestic trips, the per diem is around Rs.1,200. Such norms are prevalent even in RBI. These norms were formulated long ago to create an avenue for a little earning on the side, in a perfectly legal way, when the salary levels in the banking system were much lower. They should now be scrapped and banks should shift to the system of reimbursing actual spending on overseas or domestic trips. That would be a nice way of saying that as with charity, reforms related to unaccounted money also begin at home.
Banker’s Trust Realtime is a frequent blog by Tamal Bandyopadhyay, who writes a popular weekly column Banker’s Trust.