BENGALURU: On an average, at least one banker is caught and punished for involvement in fraud every four hours, an analysis of data compiled by the Reserve Bank of India has revealed.
Between January 1, 2015 and March 31, 2017, as many as 5,200 officials of public sector banks have been punished for fraud.
“These employees have been convicted, awarded penalties, including dismissal from service,” the RBI document states. The central bank is in the process of compiling the data for such cases from April 2017.
While 1,538 officials of the State Bank of India faced action for fraud, putting the bank on top of the chart, Indian Overseas Bank and Central Bank of India occupy the second and third place with 449 and 406 insiders, respectively, being found guilty.
At Punjab National Bank (PNB), 184 officials were caught for fraudulent activities during the same period. The numbers assume significance as multiple agencies are now digging deeper to unearth insider role in the massive fraud at PNB.
Netrika Consulting managing director Sanjay Kaushik, whose clientele include banks, says that banks spent too much time looking outside their walls for frauds, and thus have ignored introducing networkwide risk frameworks.
Concerned, the RBI has been issuing circulars to banks about how to effectively report cases and also put in place mechanisms to prevent them. A July 2016 circular, the latest in a series, reads: “To compress the time taken in detection of fraud, a framework for handling loan frauds has been put in place.”
Bikash Gangadharan, a senior manager with a multinational bank, says: “…There should be multiple levels of authentication… But the Indian banking system is extremely hierarchical… If the manager says something must go through, nobody says that it must need a second review, which is a risky way of running things.”
While this set of data does not reveal the financial loss banks suffered due to employees committing fraud, separate data accessed from RBI for the period between April 1, 2013 and December 31, 2016 shows that all commercial banks, including private ones, lost Rs 66,066 crore to 17,504 frauds.
Of the total number of frauds, 2,084 cases saw the involvement of insiders, accounting to 12% of the cases. But the data does not say how much money was involved in the frauds committed by the employees.
“It is obvious that banks have not been able to identify and take proactive steps to mitigate known risks. This makes it hard to pinpoint who is involved. The top management is definitely at fault for failing to put in place a clear compliance strategy,” says Tobby Simon of Synergia Foundation, a multi-disciplinary thinktank.
Most of the foreign banks employ efficient frameworks for risk reporting that help in identifying the patterns. Risk frameworks have algorithms that pinpoint a particular threat.
Jatinder Pal Singh, who had worked with a multinational corporation bank’s IT risk management team for seven years, says that service providers such as IBM have even developed software that flag frauds.