Are bankers India’s new corrupt?
Mumbai/New Delhi: The visits started earlier in December and covered eight branches of Axis Bank across India.
Income tax officers, alerted by the bank about suspicious transactions in around 50 accounts, arrived to inspect books, speak to executives and probe whether there had been any attempt to launder money.
The visits crowned a torrid fortnight for India’s third-largest private sector lender—it had to deal with similar visits by investigative agencies to other branches and scotch rumours that the Reserve Bank of India (RBI) had scrapped its banking licence or was thinking of doing so.
Axis may have been hit the hardest in the post-demonetisation clean-up, but other banks too have been (and continue to be) investigated for the alleged complicity of their officials in helping people launder money.
Since then, banks and bankers have rarely been out of the news.
At first, they were lauded for working long hours and on holidays exchanging currency and helping people deposit the invalidated notes. In his first public rally after announcing demonetisation, Prime Minister Narendra Modi singled out bankers working over the first weekend for special praise.
Soon, though, they became villains in the public eye—for allegedly abetting the laundering of black money.
If the year began with talk of the role of banks and bankers in India’s big bad debt problem, it ended with talk of their role in money laundering.
At first, bank employees were lauded for working long hours to tackle demonetisation. Soon, though, they became villains in the public eye
The ecosystem
Every time a wave of white-collar graft has hit India, it has been due to something in the ecosystem which enables information arbitrage. Of course, the underlying driving force is plain greed.
The securities scam in 1992 was a story of individuals who gamed a system by monetizing the information gaps in an evolving financial securities trading system. Exploiting this would not have been possible without the help of key intermediaries—retail and investment bankers, securities traders and the ubiquitous all-purpose fixers.
Similarly, the scam involving the allocation of telecom spectrum and coal mines was made possible by the lack of a transparent and rules-based system. The minute the decisions became ad hoc, rentier income was guaranteed—and the rest is history.
In the case of demonetisation, for the first time, power devolved to the level of the local branch manager and even a teller.
blFollowing the note ban, the role of a bank employee became more central to the process. And the opportunity for corruption went from wholesale to retail
The risk seemingly was very low, given that the trail could easily be obfuscated. Limited currency supplies meant the bank branch—otherwise disenfranchised by the spread of ATMs—overnight became a critical nodal point for the exchange of old currency notes for new.
Long lines—sometimes kilometres long—built up outside almost every bank branch in the days following demonetisation, making the role of an average bank employee even more central to the process. The opportunity for corruption had just gone from wholesale (where top-level bank management traded favours for loans to dubious corporates) to retail.
And the various flip flops in the demonetisation rules—with the authorities focused on staying a step ahead of the bad guys—made the role of a banker in the exchange of currencies that much more critical.
“In such a large operation, there are always going to be some mishaps. We have to ensure that people like this get caught and they are given due punishment, but it is unfair to paint the entire banking sector with the same brush,” said the executive director of a large public sector bank, requesting anonymity as he is not allowed to talk to the media.
“In such a large operation, there are always going to be some mishaps…but it is unfair to paint the entire banking sector with the same brush”- Executive director of a large public sector bank
Bankers faced other problems too.
A senior official at a medium-sized private sector bank revealed that a large value customer with a substantive deposit threatened to go to another bank when pressured to reveal the source of the money being deposited.
“A branch manager’s effectiveness is also measured on how many large deposits he is able to generate and maintain. This gives the bank more opportunities to cross-sell other services. So, maintaining relationships is very important,” the second banker added, requesting anonymity.
Even as bankers continue to defend branch staff, agencies such as the Enforcement Directorate (ED), income tax (IT) department and Central Bureau of Investigation (CBI) have conducted searches and visits at branches across India, resulting in several arrests.
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