Private banking faces laundering threat

Private banking poses a major threat to Indian banks today as it has the potential to increase money laundering activities.

"With large sums of money moving within the banking system, it is sometimes difficult to ensure the legitimacy of the funds," said the executive at a leading private sector bank.

With treasury income falling, banks are looking at private banking clients to boost their bottomlines.

At the same time, with the Reserve Bank of India (RBI) having imposed December 2005 as the deadline for banks to have in place proper mechanisms to check money laundering, private sector and public sector banks have started talks with vendors.

Banks are required to implement an enterprise-wide anti-money laundering (AML) policy, procedure and technology to effectively counter the risk of money laundering.

"We are in talks with 8 Indian banks to offer AML solutions. Of these, 6 are public sector banks including Bank of India, said Hanuman Tripathi, managing director, Infrasoft Technologies Ltd.

AML solutions deployed in banks are aimed at playing a key role in detecting suspicious activities, recording suspicious transactions in a timely manner, reporting the suspicious transactions to the regulators and efficient management of information flow across the complex and large hierarchy chain in the organisation, said Tripathi.

Many private sector banks are looking at a AML package that includes private banking and wealth management solutions, he added.

Today Infrasoft Technologies has implemented AML solutions for 11 banks across the globe, including Bank of India's UK operations. Private sector banks are expected to invest about Rs 3 crore in putting into place an AML solution.

This would include the software and hardware, as banks would prefer to segregate the infrastructure on core banking operations and security mechanism, said Tripathi.

Costs for public sector banks would be higher and probably doubled depending on the number of branches, which are on the core banking platform, said Tripathi.

Infrasoft hopes to bag a few contracts from the domestic market, but does not expect India to contribute significantly to the company's turnover.

"The decision-making process here is very slow, though we do expect private banking and wealth management markets to boom," said Tripathi. India is expected to contribute Rs 35 per cent of he company's Rs 55-crore turnover in fiscal 2005.

"Our turnover is expected to increase over 3.5 times to Rs 200 crore by fiscal 2007. However, India's share is expected to drop to 15-17 per cent then," said Tripathi.