Money laundering: RBI to share banks' inspection report

Bowing down to pressure, the Reserve Bank of India has agreed to share relevant extracts of its banks' inspection reports with a central economic intelligence wing to help it check money laundering and violations of other banking laws.
The central bank is expected to soon sign a Memorandum of Understanding with the Central Economic Intelligence Bureau (CEIB), an apex intelligence agency under the Finance Ministry, in this regard, official sources said.
The RBI had repeatedly refused to share inspection reports with the bureau citing legal hurdles despite the matter being raised time and again during the meetings of Economic Intelligence Council (EIC) headed by Finance Minister Arun Jaitley.

The matter was referred to the Law Ministry, which said provisions of the Banking Regulations Act, 1949 and other banking laws do not restrain RBI from sharing extracts of inspection or scrutiny report with law enforcement agencies or CEIB.
"RBI has agreed to share relevant extracts of inspection reports of banks with CEIB and has sent a draft of the MoU to CEIB. The draft has been accepted by CEIB and RBI with some minor modifications. The MoU is expected to be signed by RBI and CEIB shortly," as per the agenda note for the meeting of "working group on intelligence apparatus pertaining to EIC".

The RBI was required to share relevant extracts of inspection reports with law enforcement agencies and CEIB to check black money and other financial crimes where gross violations of Know Your Customer (KYC) guidelines and Prevention of Money Laundering Act were noticed, the sources said.

RBI had objected to sharing the reports with CEIB on the ground that the latter was not a statutory body. The central bank, however, was sharing these reports with Intelligence Bureau (IB), which is also not a statutory body, they said.
The Reserve Bank reiterated the need for a better
translation of its policy actions into the lending rates by banks, adding that measures like reduction in the small savings rates, refinements in the liquidity management framework announced in the policy and the introduction of the marginal cost of lending based lending rates will help in this regard.

Rajan had last cut the key rates at the September 2015 review by a surprising 0.50 per cent, stating that the RBI is "frontloading" through the measure but affirmed that the central banks continues to hold the accommodative stance.
Conducive government actions and macroeconomic data had heightened expectations of a rate cut by Rajan in the first bi-monthly policy announcement for 2016-17.
At 5.18 per cent for February, the headline inflation was trending lower than expectation, making it easier for the RBI to achieve its goals.
The government's affirmation of sticking to the fiscal consolidation path in the budget by promising to bring down the fiscal deficit to 3.5 per cent in the current fiscal, and also a reduction in the small savings rates flagged by RBI in earlier policy announcements only bolstered the demands for the cut.

Repeated contraction in the factory output, which came in at a negative 1.5 per cent in January, had also upped the demands for the growth-boosting measure of a cut in the key policy rates.
With the liquidity being tight in the recent months, there were expectations of measures on this front.
On the regulatory side, RBI said it is mulling a regime where large borrowers (which account for a bulk of the NPAs) shall be mandated to go to the market for a part of their funding rather than relying on banks completely.
RBI also proposed to redefine bank branches and permissible methods of outreach.

It will also issue a discussion paper to go ahead on the differentiated banking and look into the introduction of custodian banks and wholesale banks, the policy document said.