Search the Internet          Tips  Sites: Finance, Investment

RBI asks banks to act tough on money laundering

BS City Editor

The Reserve Bank of India is finally waking up to the phenomenon called money laundering.

RBI deputy governor G Muniappan has called a meeting of all bank heads on Saturday to keep a close tab on transactions by "organisations". This is significant in the context of the US Federal Reserve clamping down on State Bank of India for its lack of systems and controls at its US operations.

The Indian central bank, which took up the matter with the US regulator, has now changed its position and made it clear that banks that have foreign branches must "comply with the requirements of the host country regulations".

Earlier, the RBI tried to reason with the US Fed that foreign currency accounts are subject to RBI regulations as the mother accounts are kept in India and only mirror accounts are held in the US for clearing dollar transactions.

An RBI note circulated among all bank heads said the meeting would focus on the need for banks to keep track of the origin, the beneficiary and the destination of the FCNR(B) accounts. "The banks are required to undertake due diligence-the 'know your customer' principle-in respect of banking transactions by organisations," it said.

It also said that the banks must keep a watchful eye on the banking transactions of organisations. If something is found to violate any provisions of existing Acts or normal banking operations, the matter may be reported to the RBI and the appropriate authorities.

The RBI move follows the US Fed's directive to SBI to furnish quarterly progress reports "detailing the form and manner of all actions taken to secure compliance with" the cease and desist order issued last month.

The Fed had also said: "If approval of the Reserve Bank of India is required for SBI-US to comply with any provision of this order, and RBI does not grant such proposal," SBI must explain the RBI's position to the US regulator and "ensure that its US activities continue to be consistent with applicable US laws."

The December 8 meeting will also focus on the following areas:

• A cost-benefit analysis on pricing deposits, expenditure on computerisation, voluntary retirement etc.;
• Revised risk weightage in accordance with the new Basle capital accord and upgradation of risk management systems;
• The increase in high value deposits which the banks are finding difficult to deploy; hence the interest spread is coming under increasing pressure;
• Banks' high exposure to unsecured loans which, along with unsecured guarantees, should not exceed 15 per cent of the total outstanding advances;
• Banks' preparedness for risk-based supervision.
• and
• Action taken by banks on corporate debt restructuring.

Powered by

YOU MAY ALSO WANT TO READ:
The Rediff-Business Standard Special
The Budget 2001-2002 Special
Money
Business News

Tell us what you think of this report