Money laundering: RBI takes action against erring Urban Cooperative Banks

Cracking down on money laundering, the Reserve Bank of India (RBI) has closed down six Urban Cooperative Banks (UCBs) which were suspected of being used to route illegal money. 

The central bank has also asked state governments to take stern action against any other erring UCBs after reports emerged that such entities were being used as conduits for money laundering. 

The matter of misuse of UCBs, over which there is dual control by central and state governments, was discussed during a recent meeting of the Economic Intelligence Council (EIC) headed by Finance Minister. 

UCBs are inspected annually or once in two years depending on their ratings or classification. About 70 per cent of these urban cooperative banks are subjected to inspection every year. RBI has aggressively pursued the issue and around six UCBs were closed as they were found to be "unviable", according to the minutes of the meeting. 

Sources who were present at the meeting said it was found that these banks were lax on regulatory issues and were used as conduits. 

"RBI had taken up the issue with the state governments and also advised stringent action against the erring UCBs," it said, but did not disclose the names of the banks. 

On the issue of risk categorisation and compilation or updating of profiles of all their existing customers, the apex bank said their regional officers have been advised to seek compliance from UCBs and submit an update which would be reviewed and any necessary action initiated. 

RBI has been directed by the Chairman, EIC, to block accounts of non-complying customers while keeping the credit option open. The customers would be able to credit money into their accounts but the withdrawal facility would be activated only when the mandated information is furnished. 

The action comes after it came to be noticed that the UCBs, which hold deposits of over Rs 2 lakh crore, are being misused for money laundering, causing alarm to the government. 

It was observed that the problem of irregularities in the UCBs is of "grave nature" given their wide reach and penetration across the country with 8,100-plus branches which have huge deposits to the tune of Rs 2.09 lakh crore and advances worth Rs 1.35 lakh crore. 

The government had earlier formed an inter-ministerial group headed by the Director General of the Central Economic Intelligence Bureau (CEIB) and comprising members from CBI, Department of Revenue, Department of Financial Services, Financial Intelligence Unit, RBI and Central Board of Direct Taxes (CBDT). 

The report of the group has been shared with all member agencies for further action, it said. 

The EIC, while discussing the issue earlier, was informed about a case of a Gujarat-based cooperative bank in which 9,166 forged savings accounts were opened in the name of deceased persons to launder black money to the tune of Rs 161 crore which was deposited and withdrawn immediately, a senior CEIB official said. 

Several gross irregularities were also mentioned in another RBI report relating to inspection at another such bank based in Uttar Pradesh, he added. 

It was also noticed that a sum of Rs 17.57 crore was withdrawn from an account while deposits were only to the tune of Rs 11.90 crore. The account was found to have been closed without settling the transaction. It appeared to be a fake account created for siphoning off money from the bank, the EIC report has found. 

As to the dual control of UCBs, which affects the implementation of regulatory measures, RBI had informed that the problem is being resolved through the mechanism of TAFCUB (Task Force on Cooperative Urban Banks) and the banking related aspects of the UCBs are regulated by it. (PTI - Economic Times)