The main reason why banks were able to open so many accounts in so little time was the relaxation in the Know Your Customer guidelines.
“There is a possibility of the involvement of a money mule, a person using an account in somebody else’s name to do legal or illegal transactions. There are already reports of accounts being sold for a paltry Rs 500-Rs 1,000,” said a government official.
A person without any documentary proof could also open an account, based on a letter from the sarpanch of the village.
The concern is a huge jump in the number of accounts at the bottom of the pyramid. The size of each is small, but the possibility of money laundering and fraud can’t be ruled out, experts said.
A staffer with the State Bank of India, posted in a remote village near Alwar in Rajasthan, said the undereducated and poor often fall prey to rackets promising money rewards and lotteries.
So far, no instances of fraud or money laundering have come to light.
Finance ministry officials tried to allay fears that accounts opened under the scheme might be used for money laundering.
Aman Agarwal, vice-chairman and professor at the Indian Institute of Finance, said the concerns on money laundering can be easily controlled at the bank’s level.
In the first part of the series published on Tuesday, Business Standard reported that while the government’s financial inclusion mission is well intentioned, it might be putting a severe strain on the banking sector. People have opened multiple accounts under the scheme.
Bankers are hopeful that once accounts are seeded with Aadhaar numbers (around 20 million have been done so far) and money starts flowing in through Direct Benefits Transfer projects in cooking gas or other schemes, fake accounts are likely to be weeded.
“Gradually, emphasis has shifted to educating account holders about the usage and various facilities,” the executive said.
And, the advantage might start flowing in, though it might be a trickle right now. The SBI banker throws in a raw statistic, “Almost 70 per cent of the people who came from near the branch had an existing account, but most of the people who came from areas 60-70 km away, opened one for the first time under the project.”
Abhijit Lele and M Saraswathy from Mumbai, and Vrishti Beniwal from New Delhi contributed to the story. This is the concluding part of the series