Co-op credit societies may be used for money laundering
With banks closing most loopholes for money laundering, co-operative credit societies may turn out to be the weak link in the system.
By ET Bureau |
MUMBAI: With banks closing most loopholes for money laundering, co-operative credit societies may turn out to be the weak link in the system. Hitherto co-operative credit societies were not seen as a risk to the system as although they performed some of the savings-related functions of banks, they are not part of the payments system.
However, the implementation of core-banking system and the facility of multi-city banks have enabled many to go one step closer to mimicking banking functions by issuing cheques that serve as demand drafts. With elections around the corner, some fear that these co-operative credit societies could be misused to remit unaccounted money for campaign finance at various places across the country.
Given that relative low-level of regulation compared to banks, depositors in connivance with a society could bring unaccounted money to make payments through the banking system. Co-operative societies are using their own accounts with commercial banks to acquire multi-city cheque books, which are treated as local cheques, irrespective of the city where they are deposited.
Multi-city cheques have been facilitated by the introduction of core-banking solution by banks, where all customer information is in a centralised database. In some cases, the cheques issued by co-operative credit societies are passed off as demand drafts.
A decade ago, the Madhava Das committee constituted by RBI had suggested that there is a need to stop the practice of primary credit societies commencing banking business without first obtaining licence from RBI. Last year, a petition before the Aurangabad bench of the Mumbai High Court sought to put an end to the practice of co-operative credit societies issuing such cheques.
The High Court, in its order, said the petitioners��� grievance was in the nature of a public interest litigation and could be moved before the court, assigned to take up public interest matters. Last week, the Income Tax department conducted a search of a large co-operative credit society in Maharashtra.
According to reports, the credit society had an exceptionally large deposit base. According to the reports, the society had a large number of benami accounts. The society was also reported to have provided facilities for remitting money anywhere in India.
However, the implementation of core-banking system and the facility of multi-city banks have enabled many to go one step closer to mimicking banking functions by issuing cheques that serve as demand drafts. With elections around the corner, some fear that these co-operative credit societies could be misused to remit unaccounted money for campaign finance at various places across the country.
Given that relative low-level of regulation compared to banks, depositors in connivance with a society could bring unaccounted money to make payments through the banking system. Co-operative societies are using their own accounts with commercial banks to acquire multi-city cheque books, which are treated as local cheques, irrespective of the city where they are deposited.
Multi-city cheques have been facilitated by the introduction of core-banking solution by banks, where all customer information is in a centralised database. In some cases, the cheques issued by co-operative credit societies are passed off as demand drafts.
A decade ago, the Madhava Das committee constituted by RBI had suggested that there is a need to stop the practice of primary credit societies commencing banking business without first obtaining licence from RBI. Last year, a petition before the Aurangabad bench of the Mumbai High Court sought to put an end to the practice of co-operative credit societies issuing such cheques.
The High Court, in its order, said the petitioners��� grievance was in the nature of a public interest litigation and could be moved before the court, assigned to take up public interest matters. Last week, the Income Tax department conducted a search of a large co-operative credit society in Maharashtra.
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According to reports, the credit society had an exceptionally large deposit base. According to the reports, the society had a large number of benami accounts. The society was also reported to have provided facilities for remitting money anywhere in India.
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