The Cobrapost sting which shows that banks which claim to abide by ethical standards are engaging in fraudulent practice is a clarion call for a debate on corporate governance and ethics

There is a segment of commentariat who believe that business ethics is an oxymoron. The recent pan–India undercover investigation by Cobrapost which alleges a nation-wide money laundering racket being run by HDFC Bank, ICICI Bank and Axis Bank only seems to reinforce this belief. The sting operation alleges that the bankers, among other things, take cash and invest in gold and insurance products, open account to route cash into banks' investment schemes, don't adhere to KYC norms, stash away black money in bank lockers, and split money into tranches to get it into the banking system without being detected.

In the face of these allegations, the banks have assured customers that they maintain high standards of business conduct and that they are investigating the allegations. ICICI Bank’s official response on allegations made by Cobrapost on money laundering states that the “ICICI Group conducts its business with the highest level of compliance to legal and regulatory requirements. All employees of the Group are trained and required to adhere strictly to the Group Code of Conduct, including AML and KYC norms. We have demonstrated our commitment to this by following a zero tolerance policy towards any violation.” Official responses of the other two banks are on similar lines.

At a time when there is so much of discussion around black money, the sting leads us to question the ethical posturing of these banks. If professionally managed banks can engage in such fraudulent activities what about the others? Are ethics and ethical practices merely a discussion point during boardroom meetings? Does it not trickle down to the lower rungs of the organisation? Do the middle managers and their juniors not share the same conviction that exists at the board level? Does the Code of Business Conduct and Ethics merely exist in letter and not in spirit? While the answers to such questions can vary, the essence is that there exists a gaping ethics hole among middle and junior level managers in India Inc.

For those who have seen the footage of the sting it must be clear that none of the managers asked for any personal gratification. Many in the know are putting the blame on massive pressure to meet targets and performance-oriented bonuses for the unethical practices indulged in by retail banking executives. Such apprehensions cannot be entirely wished away. According to ‘India Banking Fraud Survey 2012: Navigating the challenging environment’ conducted by Deloitte, “About 73 per cent of the respondents cited ‘lack of oversight by line managers or senior managers on deviations from existing process/controls’ as one of the major reason followed by ‘current business pressure to meet targets’ and ‘difficult business scenario’ as other two major reasons for increasing fraud incidents.”

This episode should ideally force captains of India Inc into some soul searching. While it is unthinkable that any of these CEOs would ever promote such behaviour under any circumstance, this sting puts under a cloud the spotless reputations of these iconic bankers. As few commentators have put it, these stalwart bankers must candidly argue the business case for ethical conduct in every corner of their companies and eschew short-term (target based) success for long-term sustainability.

Interestingly out of the 145 companies on Worlds Most Ethical Companies 2013 list brought out by the Ethisphere® Institute, a leading international think-tank based out of New York, only two Indian companies are featured. Time for the banks and India Inc in general to learn, adopt and practice ethical behaviour from Tata Steel’s and Wipro’s example.