The news is not surprising.What is surprising is that this has been
brought out by a private agency instead of by the regulators and law
enforcing agencies.
The banking system handles and holds a lot of black money is not a secret. Our informal economy may be equal to formal economy if not more is a well known fact.The selling of Gold coins,insurance products etc in branch premises has enabled banks to cover up all illegal transactions. The new generation Private sector banks are always a challenge to the regulatory system and they are ahead of the regulators in introducing innovative products without perhaps getting them vetted by the regulators. They know very well that the system permits or tolerates aberrations and the aberrations are done on whole scale basis.It is practically impossible for the regulators to check each and every transaction that takes place in banking.Further the present inspection also does not expect to be transaction based as per the liberalised approach. Banks know the weaknesses and they are smart in violating the rules and regulations. The auditors are banks own paid employees and they cannot be expected to point out their fingers at them.On the contrary they help the banks to cover up the transactions. There is always a trade off between banks and auditors.
The only way to stop banks from indulging in money laundering activities is to ban the sale of insurance products and gold coins. Further, the regulator has to tighten its noose by increasing the number of branches taken up for inspection and improving the scrutiny standards of the data they get at periodical intervals.The banning of gold sale will also help to fight black money and minimise investments in gold at least through banks.
The banking system handles and holds a lot of black money is not a secret. Our informal economy may be equal to formal economy if not more is a well known fact.The selling of Gold coins,insurance products etc in branch premises has enabled banks to cover up all illegal transactions. The new generation Private sector banks are always a challenge to the regulatory system and they are ahead of the regulators in introducing innovative products without perhaps getting them vetted by the regulators. They know very well that the system permits or tolerates aberrations and the aberrations are done on whole scale basis.It is practically impossible for the regulators to check each and every transaction that takes place in banking.Further the present inspection also does not expect to be transaction based as per the liberalised approach. Banks know the weaknesses and they are smart in violating the rules and regulations. The auditors are banks own paid employees and they cannot be expected to point out their fingers at them.On the contrary they help the banks to cover up the transactions. There is always a trade off between banks and auditors.
The only way to stop banks from indulging in money laundering activities is to ban the sale of insurance products and gold coins. Further, the regulator has to tighten its noose by increasing the number of branches taken up for inspection and improving the scrutiny standards of the data they get at periodical intervals.The banning of gold sale will also help to fight black money and minimise investments in gold at least through banks.
(This is in response to a blog Cobra Post sting that appeared in ET dated 15/3/13
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