Syndicate Bank Pulled Up Over Lapses

The Reserve Bank of India (RBI) has pulled up the Syndicate Bank for its failure in effectively using the internal inspection and concurrent auditing to check frauds and defalcation of funds.

The internal inspectors of the bank (Syndicate Bank) have failed to detect fraud to the tune of Rs 4.5 crore in a Mumbai branch even after identifying certain lapses, said RBI, which recently conducted an inspection into the affairs of the loss-making bank under Section 35 of RBI Act. Same was the case of concurrent auditing, which was done routinely rather than trying to cover vital areas such as frauds, defalcation of funds at branch level, the report said.The report, which covered the last two years dealings of the Manipal-based bank till December 1996, said a Rs 4.5-crore fraud that occurred at Jogeshwari branch in Mumbai could have been averted, had the internal inspector and the controlling units were to be alert. The fraud was perpetrated on the bank by a resident borrower in collusion with the manager of Jogeshwari branch, the report said.

 

The manager concerned allowed a resident borrower to obtain Rs 3.32-crore loan against third party FCNR deposits in mid-1995.

The fraud was detected an year later when the FCNR depositors informed the bank that they had never authoiurised anybody to avail loans against their deposits.

Though internal inspection wing of Syndicate Bank had conducted a probe in 1995 December into certain procedural lapses on the part of the branch, it failed to detect the fraud, said the RBI report. Worse, subsequent to the inspection, the bank allowed the fraud to go on by allowing the borrower to draw another tranche of Rs 97.68 lakh, the report said. This happened because the internal inspection wing, as well as controlling office of the bank, failed to act in good faith despite sudden enlargement of credit at the branch on account of these loans, the report said.

Commenting on the flipside of the concurrent auditing in Syndicate Bank , the RBI report said it has failed to cover vital areas like frauds, defalcation of funds in the branch. The Reserve Bank team had conducted inquiries into certain branches where concurrent auditing was done recently to identify the lapses.

The fact that the persons who conducted concurrent auditing submitted their reports two-three weeks after completion raises doubts, said the RBI report.