Cobrapost’s Accusations Against Bank To Be Investigated By RBI

Cobrapost, an online portal, conducted a sting operation in three of the largest private sector banks -HDFC Bank, ICICI Bank and Axis Bank. According to reports, the investigation conducted by the Executives of Cobrapost revealed that these three banks were not adhering to the compliance standards and have accused the banks of money laundering.

The online portal had conducted sting operations these three private sector banks in some of their branches in North India. According to media reports, this investigation revealed that the bank accepted black money through and violated the rules set down by the Reserve Bank of India, FEMA Act, Income Tax Act, KYC norms, the Banking Act and the Prevention of Money Laundering Act (PMLA). The banks opened benami (fictitious) accounts and skipped the ‘Know Your Customer’ (KYC) norms to accept huge cash (black money) which was then invested in various insurance products and gold. The banks also offered locker facilities which were opened for keeping this black money. For more info on Cobrapost, one may visit www.cobrapost.com.

As soon as this news was out on the D-Street yesterday, all the three banks came out with a clarification stating that they have followed strict compliance standards and will look into the matter and investigate it at the earliest. The HDFC Bank press release stated that “the bank has always adhered to the compliance standards” in line with its corporate governance philosophy.

The ICICI bank report said that all employees of the Group were trained and required to adhere strictly to the Group Code of Conduct, including AML and KYC norms. “We have demonstrated our commitment to this by following a zero tolerance policy towards any violation,” The press release stated. Axis Bank reports said that the bank has built a strong customer franchise over the years and maintains high corporate governance standards. “Any deviations to such standards are viewed very seriously,” it mentioned further.

The stocks have seen some downside (approximately 2 to 3 per cent), but we believe that there would be no major impact on the stocks. The being the largest private sector banks, doubting their corporate governance is highly debatable. Although Cobrapost has conducted investigations, RBI would certainly investigate into the matter independently and the final verdict can then be drawn out.

A drastic impact on their share prices right now isn’t very likely. However, the banks’ reputations have surely taken a beating with these reports. One should consider that the most important factor in the banking business is trust and brand reputation which is built over a longer time.

We, at DSIJ, continue to retain our bullish stance on the private sector banks. We had recommended Axis, ICICI and HDFC Bank in the past, thanks to their handsome returns to the investors. We believe that one should remain invested in the space keeping in mind a long-term horizon to garner better returns.