Really painful: Letter to BS on RBI forms panel to curb banks fraud

It has been reported that the Reserve Bank of India (RBI) is setting up a panel to curb bank fraud. It is ridiculous to set up a panel by the RBI now, after 49 years of bank nationalisation. Bank frauds are not new to India though PNB’s multi-crore fraud may be the largest one, which could have been avoided with compliance of simple internal control systems. The Rs 110 billion fraud in one group account and in one branch means that the branch must be a scale V or scale VI branch (in a banker’s language), headed by either a general manager or a deputy general manager. This being a multi-crore forex-related fraud, the GM or DGM heading this branch must be an expert in forex, failing which he cannot be expected to head such an exceptionally large branch.

There must be a concurrent auditor for such a large branch. There must be a regular internal inspection of the branch every year, besides external audit by the bank’s appointed auditors every year. There may be other audits like leakage of income audit, large borrowal accounts audit, large non-fund based client audit (all these audits are quarterly or half-yearly by bank’s head office or zonal office or regional office inspection departments as per their respective internal policies). Above all, RBI audit must be there once in two-three years.

If such well-defined checks and balances are in place, how can a fraud of this magnitude take place? It is only possible with the connivance of the staff concerned at the branch, regional office, zonal office and head-office level. Or because of the sheer inefficiency of the top management. The CBI and all other investigating agencies should question the top management without any hesitation. Then only the message will go down the line with other banks. 

Ananta Padmanabhan  via email

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