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RBI will act against banks laundering money: Subbarao

The Reserve Bank of India (RBI) has completed investigations against banks after the expose by web portal Cobrapost for violating prudential banking norms and will take action if they are found guilty, Governor D. Subbarao said in Srinagar Thursday.

"We have done investigations, we have prepared an internal report. There are processes to be followed to take investigations to its logical closure... The first is action against individual institutions who are involved in practices which are not consistent with the banking regulation and prudential banking," Subbarao told a press conference after the RBI's central board meeting.

Cobrapost in its expose has alleged money laundering and other wrong doings by several public and sector financial institutions, including the country's largest bank State Bank of India and the Life Insurance Corporation.

The RBI governor also said it was a "misnomer" to call the West Bengal financial scam a chit fund scam, as chit funds are legal operations controlled by the central bank.

"What has been blown up in West Bengal is a collective investments scam which is regulated by SEBI (Securities and Exchange Board of India) and the SEBI is taking action in that."

Replying to a question about Islamic banking being allowed in the country, Subbarao said: "The proposal for Islamic banking has come to us from some parliament members.

"It is being studied and examined by us. What needs to be seen is how Islamic banking would be allowed which does not allow taking and charging of interest on which our banking system operates."

The central bank held a special committee meeting of all the banks working in Jammu and Kashmir. The governor said the meeting had decided that the credit deposit ratio in the state will be raised from 36.5 percent to 40 percent during this fiscal to make sufficient credit available to the people in J&K.

"Bankers said enough credit avenues are not available to them in the state and that the SARFAESI (securitization and reconstruction of financial assets and enforcement of security interest) act is not applicable in the state. The chief minister has assured that all the DICs would be used to generate credit avenues for the banks.

"As far as the SARFAESI act is concerned, the chief minister has said it will be enacted shortly in the state either in the assembly or through an ordinance."

The SARFAESI act empowers banks to dispose of assets of defaulting borrowers to recover loans from them without having to go through the time-consuming process of invoking such securities through a court of law.

He said that during the bankers meeting it was reiterated that no collateral security by way of mortgage should be taken by the banks up to loans of Rs.10 lakh.

"So far as financial inclusion is concerned, till the end of the last fiscal 986 villages in J&K with population above 2,000 have been covered in the financial inclusion policy by providing them banking access.

"Banks have been asked to cover all the 5,800 villages with population less than 2,000 in the state through financial inclusion by the end of this fiscal," he said.