Instead of launching a series of investigations into how unaccounted-for money flows into the banking system from one side, gets cleaned up, turns legitimate and exits from the other side, it is disappointing to see the Reserve Bank of India (RBI) turn a benign eye on violations that could explode into issues beyond banking. A few days ago the central bank imposed penalties of Rs 49.5 crore on 22 banks that violated know-your-customer (KYC) norms and anti-money laundering processes exposed by Cobrapost in March and May.
In English that means the banking regulator penalised these banks for violations on two issues that India is currently debating. One, the conversion of black money into white, using insurance sales as the medium. The method is simple: buy a series of insurance policies of less than Rs 50,000, beyond which the KYC norms kick in. So, if you want to launder Rs 10 lakh worth of unaccounted-for money, go no further than the RBI-regulated banks. Commissions-chasing executives, led on by bonus-seeking top executives, will advise you to buy 20 life insurance policies worth Rs 49,000 each and one policy of Rs 20,000. Give the money three years and it’s laundered, snow white.