by Neeraj Mahajan
“When I go into a bank I get nervous. The clerks make me nervous; the little windows at the counters make me nervous; the sight of the money makes me nervous; everything makes me nervous. The moment I go through the door of a bank and attempt to do business there, I become an irresponsible fool…”
– Stephen Leacock in ‘My Financial Career’.
THere is an age-old saying that if you have no money, then you cannot get justice. Nothing can be closer to truth in India today. The other day somebody posted this on Facebook: Q. Where is the Capital of India? A. In Swiss Banks!
Indeed. It reminds us of what Sir Thomas Gresham who advised King Edward VI and Queen Elizabeth I on financial matters, said, “Bad money drives out good”. This axiom is taught even today to students as the Gresham’s Law. The law states: When a government compulsorily overvalues one type of money and undervalues another, the latter will leave the country or disappear from circulation into hoards, while the former will flood into circulation.
Loopholes in the system
A major flaw, not just in India, but in the global banking system is that while a majority of the black money does not flow through the formal banking channels, bankers willy-nilly act as conduits for abetting and conniving with the money laundering operators, enabling them to convert black money into good money or vice-versa. Almost 30-40 per cent of the money laundered exits but never returns through the formal banking system. The rest 60-70 per cent black money is actively processed by the bankers because the banking system cannot identify whether money deposited is good or bad.
Almost 92 per cent of the banking segment in India is dominated by public sector banks and only 8 per cent is under private control. The organised money market consists of the Reserve Bank of India, scheduled commercial banks and recognised financial institutions. Apart from this, there exists a varied unorganised money market comprising unscrupulous money lenders, indigenous bankers, traders and agents. Though the RBI and other regulators seem to control the organised money market, there are no set rules and guidelines governing the unorganised money market…READMORE