Will the honest bankers caught in Cobrapost sting operation help soften the RBI blow on erring banks?

A third set of revelations by the Cobrapost sting operation on how bankers help to launder ill-gotten cash now covers HSBC India and Standard Chartered Bank as well. What has, however, made bold headlines is its revelation that a set of honest, upright bankers had flatly refused to bend the rules and launder unaccounted money. Cobrapost showcased five such bankers: Balasubramaniam of Axis Bank (Hyderabad), SK Garg of Bank of Baroda, Anurag Prakash of Canara Bank, Ashish Agarwal and Akash U of HSBC India. Anurag Prakash even points out that the “RBI is very strict about these things.” However, for Cobrapost, there may be a twist to the heart-warming tale.

We don’t know whether the five have been felicitated by their respective banks or not; but these five upright bankers may have saved their employers from strong action by the Reserve Bank of India (RBI). So far, RBI has fined three private banks for various irregularities detected during its inspection. We learn that as many as 15 show-cause notices have been issued by the regulator. But, now, the banks can use these honest bankers to forcefully argue that they do not encourage employees to break the rules, much less launder black money. In effect, banks would expect everyone to believe that the willingness to launder black money is not a reflection of institutional tolerance (or encouragement) but an employee fraud.

The HSBC case is especially ironical. In December 2012, it paid nearly $2 billion to settle charges brought by US authorities that it had helped Mexican drug cartels launder funds through the US financial system, and that it worked closely with Saudi Arabian banks linked to terrorist organisations. The settlement was considered a sweetheart deal that let the Bank off without prosecution or criminal charges. And this from a country that ruthlessly jails individuals for violating drug laws and has not hesitated to put a string of celebrities behind bars. Yet, in India, HSBC can claim, with some credibility, that it has a “zero-tolerance policy for breaches of law and regulation” and will take “appropriate action, including dismissal” if an employee is found to have breached its policy. RBI, which is already rather soft on banks, will find its hands further tied by India’s delicate foreign exchange balances.