Six Maharashtra co-operative banks in Rs 10,000 crore fraud

Cooperative banks have once again come under the scanner of the income-tax (I-T) department. While the department suspects a mega fixed deposit (FD) scam spread over several co-operative banks, there is another fraud through demand drafts worth less than Rs 50,000, which is the maximum that one can deal without producing PAN cards.

As per I-T department's primary probe, banks are managing unaccounted monies, mostly of politicians, running into at least Rs 10,000 crore in benami FDs.

Simultaneously, I-T sleuths have also unearthed a fraudulent pattern of these banks issuing DDs up to Rs 49,900 to avoid furnishing pan card details and flouting Know Your Customer (KYC) disclosures.

As per RBI guidelines, demand draft of any amount more than Rs 50,000 is taxable under the income-tax head 'income from other sources'.

According to taxmen, the primary information point an accusing finger at half-a-dozen cooperative banks in Maharashtra. Other state cooperatives are also being looked into.

According to I-T sources, these banks are suspected of flouting RBI norms by managing huge chunks of money by converting them into smaller fictitious deposits, on which they earn interest as well.

"These people usually have such deposits in the name of drivers, housemaids or unknown names who are not even aware of such deposits in banks," said officials.

Apart from FDs, what caught the attention of sleuths is the issuance of a series of demand drafts – of Rs 49,900 or around, without any payee's name written on the face of it, according to a senior I-T official.

These DDs, most of which are purchased by textile traders, as per the initial information available, get exchanged during purchase of goods, which then get circulated within their fraternity until the last holder encash the draft a day before the three-month expiry date.

The I-T department suspects that such transactions are taking place from one city to another in connivance with top bank officials.

"It is believed that banks have no records of DD purchase in their books of accounts, hence unable to reconcile as per the information we had, which need to be probed," said an I-T sources.

The department believes dubious FD practices are not limited to co-operative banks. "A probe would reveal that most foreign banks, private banks and even large public sector banks have been indulging in gross misselling at one end and dodgy practices to help powerful politicians launder black money at the other end," said a bank expert, who did not wished to be named.

Clearly, the efforts by the Reserve Bank of India (RBI) are not effective enough, says an I-T official.

In January, this year, the RBI had directed all primary (urban) cooperative banks to set up a special committee for monitoring and following up cases of frauds of Rs 1 crore and above. In the notification, it said that there was a need for paying attention on monitoring frauds at the highest level, ensuring staff accountability, and reviewing the efficacy of remedial actions taken to prevent recurrence of frauds.

It was observed that there has been a delay in various aspects of frauds such as detection, reporting to regulatory and enforcement agencies and action against the perpetrators of the frauds that was causing concern.