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Letter to BS: Hawk eye in banks need of the hour to detect frauds early

Banks must scrupulously observe all the systems and procedures prescribed for the conduct of the banking activities

Business Standard 

banking, regulation, bank regulation
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This refers to "All you wanted to know about banking frauds" (November 18). At a time when the banking sector, particularly the government-owned banks, are hamstrung by the undeterred incidents of bad assets, controlling and addressing the credit-related frauds is crucial to protecting the banks from financial and credibility damages. Despite robust systems to ensure preventive vigilance, the banks fail to prevent the occurrence of frauds which indicates that the strong involvement of the staff nullifies the existing prevention measures. While loans and advances are more prone to frauds, banks should keep a watch on the activities of the concerned staff who are dealing with the borrowers of the bank.

Beginning from the receipt of an application for credit facilities to the liquidation of the loan, there are various phases which are vulnerable and that enables fraudsters to cheat the bank. The risk factors vary with the nature and type of loan, the economic activity of the borrower and the securities offered or available to the lender. As such, any flaws in the observation of the prescribed checks and balances defeat the due diligence and taking advantage of the situation and the loopholes, the fraudsters are cheating the banks. Despite the importance of watching the early warning signals and accordingly red-flagging the loans, many a time these are wilfully or unintentionally ignored and cause losses to the bank.

Banks must scrupulously observe all the systems and procedures prescribed for the conduct of the banking activities. Violation of the norms by the functionaries have often jeopardised the interest of the bank and exacerbated the losses. Early detection and reporting the frauds to the banking regulator and to the investigating or enforcement agencies are imperative to curtail losses as well as to retain the confidence of all the stakeholders.

VSK Pillai, Kottayam


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First Published: Mon, November 18 2019. 21:51 IST
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