Government of India
Ministry of Finance
Department of Financial Services

Rajya Sabha
Unstarred Question No. 1496

To be answered on 29 November, 2016/ Agrahayana 8, 1938 (Saka)
Money Laundering and Tax Evasion Through Co-operative Banks


Will the Minister of FINANCE be pleased to state:

(a)  The current framework to regulate and oversee co-operative banks and thousands of crores of deposits;

(b)  Whether it is also a fact that there are cases of co-operative bank failure causing loss to many depositors and the details thereof;

(c)   Whether weak or non-existent independent regulation and weak KYC norms are causing many co-operative banks to be used for money laundering and tax evasion and if so, the details thereof; and

(d)  Whether Government has received complaints or reports in this regards and the details thereof?

The Minister of State in the Ministry of Finance
(Shri Santosh Kumar Gangwar)

(a): Reserve Bank of India (RBI) Regulates and supervises the banking functions of State Cooperative Banks (StCBs)/ District Central Cooperative Banks (DCCBs)/ Urban Cooperative Banks (UCBs) under the various provisions of the Banking Regulation Act, 1949 (As applicable to Cooperative Societies) and the Reserve Bank of India Act, 1934. However, the matters related to incorporation, registration, management, audit, liquidation, etc. in respect of these banks fall under the jurisdiction of the concerned Registrar of co-operative societies. Under Section 35(6) of the Banking Regulation Act, 1949 (As applicable to Cooperative Societies), National Bank for Agriculture & Rural Development (NABARD) has concurrent powers to inspect StCBs and DCCBs.

(b): NABARD has reported that as on 31.3.2015, the total deposits with 33 StCBs and 371 DCCBs were Rs. 356467 crore. Out of these cooperative banks, 12 banks were having negative net worth as on 31.3.2015. NABARD has informed that these banks are servicing their depositors.

(c) &(d): RBI has informed that it has prescribed uniform Know Your Customer (KYC) norms for all commercial and cooperative banks and its Master Directions on KYC guidelines are uniformly applicable to all banks in India. RBI has further informed that it does not have information on whether extant KYC norms are causing many cooperative banks to be used for money laundering and tax evasion. However, some instances of violations of KYC/ Anti Money Laundering (AML) guidelines in UCBs have been observed by RBI and 32 UCBs have been imposed an aggregate penalty of Rs. 119.50 lakh by RBI for KYC/AML violations from 1st July, 2015 to 30th June, 2016.
NABARD has reported that the compliance to KYC/AML is monitored during inspection of StCBs and DCCBs and these banks are required to submit Cash Transaction Report, Suspicious Transaction Report, Counterfeit Currency Report and Non-Profit Organization Report, etc. to Financial Intelligence Unit-India regularly.