Co-op banks in India investigated for alleged money laundering

Indian co-operative banks are being investigated for allegedly depositing money in banned currency after demonetisation. The country’s Enforcement Directorate revealed it was looking into the transactions of more than 50...

Indian co-operative banks are being investigated for allegedly depositing money in banned currency after demonetisation.

The country’s Enforcement Directorate revealed it was looking into the transactions of more than 50 branches of leading banks, including 14 co-operative banks, for alleged money laundering.

In November 2016, prime minister Narendra Modi announced the demonetisation of Rs 500 (£6) and Rs 1,000 (£12) banknotes in a bid to stop counterfeiting and reduce corruption. 

The Reserve Bank of India (RBI), the country’s central bank, restricted the banks from accepting banned notes within a week of the announcement. Authorities said this was because a lack of automation meant the banks were unable to detect fakes.

Now, the directorate is investigating a case where more than a dozen co-op banks deposited Rs 1,596 crore (£190m) of cash in old notes. The department is also looking at a situation where 205 new bank accounts were opened in Allahabad where cash in banned notes was remitted.

“After the audit of a private bank branch in Mumbai, the sleuths found that an amount of Rs 1,596 crore was deposited by at least 13 co-operative banks using the old notes within six days time,” said a statement by the directorate published on Indian Express.

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“A similar bank in Surat deposited Rs 20 crore in scrapped currency in an account with the Bank of Baroda. These cases are being probed under the Prevention of Money Laundering Act and Foreign Exchange Management Act laws.”

However, in response to a Right to Information request by activist Anil Galgali, the organisation said it had no data on co-operative banks.

The request asked the RBI for details of the irregularities or scams allegedly made by co-operative banks in the exchange of the demonetised currency notes of Rs 500 and Rs 1,000.

“According to its reply under the right to information, the RBI does not seem to have any data to justify its conclusion of widespread irregularities and scandals in exchanging the old currency notes by state and district co-operatives banks across the country,” said Mr Galgali.

“It’s the RBI directive that stopped co-operative banks from operating and now it is the same RBI stating that they don’t have data,” added Balu Iyer, director of the International Co-operative Alliance for Asia-Pacific.

He argued the RBI needed to do a deeper audit to substantiate its claims regarding co-operative banks.

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