By Vipin Agnihotri
No one will argue with the fact that too much of a good thing can sometimes boomerang. The same is happening with India. The booming Indian economy and the rapid expansion of the financial services industry have exposed India to a very high risk of becoming a haven for money laundering.
No doubt the Indian banks are doing absolutely nothing to make their businesses foolproof. KPMG Forensic recently conducted a survey on 224 banks in 55 countries, including India, to find out how they are facing up to the twin challenges. In my opinion, vulnerability of the Indian banking system stems from a wide array of factors most prominent one being the presence of a large number of international banks.
In addition, growth of alternative asset classes like hedge funds, private equity and commodities being fuelled by a low interest regime is also the main reason behind vulnerability of the Indian banking system. Abysmal monitoring of illegal routines is also the factor.
According to experts, while banks in India and other emerging economies are generally aware of the risks, and have also been spending large sums to counter these still the problem has not been accorded the seriousness it warrants. It has come into the notice of The India Street that expenditure on anti-money laundering systems and processes has increase appreciably in the last two or three years.
I have talked with a number of top-notch bank officials on this issue and most of them were of the view that although it is common for Indian banks to provide training that meets the minimum regulatory requirements, the quality of training needs to improve to bring it up to international standards.
“Banks will need to work extremely hard from here if they are to maintain any advantage in the war against money laundering and terrorist financing,” pointed out one bank official on the condition of anonymity.
According to one estimate, black economy in India account for more than half of the Gross National Product (GDP). Indian government periodically offers legal but ethically reprehensible laundering schemes such as the Voluntary Disclosure of Income Scheme (VDIS) 1997.
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