Axis Bank Under Black Money Scanner: 5 Questions That Deserve Answers

The country’s third largest private bank, Axis Bank has once again come under the black money scanner after the Income Tax Department found deposits of Rs 60 cr in 20 fake accounts on December 15 at its Noida branch post demonetization. This came days after the department raids at its Chandni Chowk branch in Delhi where over Rs 100 cr were discovered in 44 suspect accounts. The bank under pressure, with the government asking them to set their house in order have proactively spoken to the press denying local media reports of threat to their banking license though accepting that some employees may have colluded with some account holders to manipulate the system. But the bank has also insisted that many of these recoveries by investigating agencies have been made possible due to their own filings with the Financial Intelligence Unit after they witnessed and reported suspicious transactions in certain accounts.

There is no doubt that the repeated cases have impacted the bank and its reputation. Axis Bank MD & CEO Shikha Sharma also wrote to customers, saying that she is “embarrassed and upset” due to the actions of a few employees who have brought the organization into disrepute. “We have taken the toughest action against such employees and we will do so in every case of divergence from our Code of Conduct,” wrote Sharma in her letter to customers.

While the Bank is keen to tide over this crisis by localizing the problem to a few branches, there are several questions that are yet to be answered. Speak to any average bank account holder and you can hear their lament on the frequent reminders one receives from their bank to fufill ‘Know Your Customer’ (KYC) norms. This writer had to make several rounds of a co-operative bank in Mumbai’s western suburb before demonetization to convince the bank officials about the validity of his documents before being accepted as a signatory on a joint account registered under a charitable trust. But when it comes to black money hoarders, it almost seems that the banking system works overtime to ensure large deposits with no questions asked, even as ordinary citizens with no financial muscle face disproportionate focus of KYC norms.

A look at the modus operandi used in these 50 Axis bank accounts can throw light on the mysterious return of over Rs 12 lakh crore to the banking system, much to the discomfort of the government.

Here are some questions that the IT Dept should ask Axis Bank and all other banks who are under their scanner.

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1. Several media reports point out that the main charge against Axis Bank is about the existence of fake accounts. Axis Bank claims that these were KYC compliant bank accounts and were in existence one year before demonetization. In that case, who were operating these accounts and did they see large deposits even before demonetization?
2. A report in Business Standard points out a staggering Rs 3 lakh crore of time deposits were made at banks between September 16 to 30, 2016. This has never happened in any fortnight since January 2001. How many of the 50 Axis Bank accounts under doubt saw a rise in deposits during this period? This can help us understand how suspicious accounts were being misused even before demonetization to launder black money in anticipation of a government crackdown in November, 2016.
3. Deposits in Jan Dhan accounts were limited to Rs 50,000 on November 15 after reports of its misuse came out. How many of these accounts in which large deposits were made were Jan Dhan accounts? Over 19 crore active accounts across the country have seen deposits of over Rs 28,000 cr post November 10. The government has often pointed out that the larger than expected return of cash (Over Rs 12 lakh cr) to the banking system can be explained by the usage of Jan Dhan accounts to convert black money into white.
4. Axis Bank has said it has so far suspended 50 accounts and 24 employees for suspicious activities. At the same time, they have tried their best to call it isolated incidents. Where did the employees fail? Did they collude actively with tax cheaters to open fictitious accounts or did they fail to report a sudden rise in large deposits. The exact nature of the involvement of these employees have been kept under suspense. The bank or the IT dept should come clean on it to understand how even the full-proof systems of well known banks came to be compromised.
5. There are conflicting reports of several suspicious accounts being those of shell firms opened by bullion companies. It has also been reported that the directors of many of these shell firms were fake. But, this means that there should have been a paper trail as Axis Bank claims to have ensured KYC compliance. How did these details then escape the bank’s systemic checks until they started facing the heat from the tax officials post demonetization scanner?

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It is important to point out that these cases are not isolated in nature. This is not the first time that private banks have come under suspicion for turning a blind eye on black money. Independent investigative journalist Aniruddha Bahal of Cobrapost had released videos in March 2013 of a sting operation conducted by his team against bank officials of Axis Bank, ICICI Bank and HDFC Bank. The videos show officials of these private banks allegedly agreeing to receive unverified sums of cash and put them in their investment schemes and benami accounts in violation of anti-money laundering laws.

What steps were taken by the banks to plug the loopholes pointed out by the sting operation? Did RBI take enough follow-up action to ensure banks put proper systems in place?

Clearly Axis Bank and the banking industry have a lot to answer than merely dismissing these incidents as a case of ‘bad apples’ and ‘black sheep’.