Curtailing India’s $10 billion fraud to $ 2 billion

“There are only two types of people on earth: those who have been hacked & those who do not know yet that they have been hacked”

It was at the cash counter of an electronic mall in Frankfurt, Germany, that a prominent local leader was flashing a bill he had just paid for the lap-top, screaming that the surveillance system of the mall is throwing false alarms of non-payment when he  has already paid the bill. The manager of mall rushed, checked, apologized the inconvenience and let the person go with the purchased article. He admonished the salesgirl for being careless in scanning the article while selling. The salesgirl persisted that her scanning was proper. and surveillance system was also working fine. 

A few days later, after being shifted to a nearby branch of the same mall the girl strangely identified this leader in the similar situation. Alarm rang loudly while he was going out with astonishingly with yet another new laptop. He flashed a bill which was paid by him just ten minutes ago. The salesgirl could not believe her eyes. Suspecting a foul play, she insisted on a detailed probe. 

The police came out with disturbing revelations. The customer in question was a local member of parliament captivated with kleptomania. He had an impulse control disorder that resulted in an irresistible urge to steal for fun and kick. A search at his apartment revealed a pile of 31 new un-opened laptops. His modus operandi was to purchase first lap-top through credit card, rush to his car and drop the laptop there, pick up another lap-top within minutes of first purchase. On being caught near security pillars he boldly flashed the bill of first purchase befooling the managers of the mall and got away with the theft sheepishly.

An Italian quote captivates the above situation comprehensively. It says, “The hardest person to awake is the person already awake.” Most of us are convinced that highly placed public persons can not indulge in stealing and sound of siren thrown by security pillars while such people pass through, are always fake and false. This pre-conceived wisdom ascribing a clean chit and exclusive sanctity of character towards well accomplished and entrenched people of society is embedded deep in our sub conscience. We know not that we know not that this presumption is cause of multimillion white collar frauds. We forget that a watched pot never boils. We hurt ourselves to learn that while we focused on the snake, we missed the scorpion. We fail to comprehend that fine feathers don’t make fine birds. 

Mahatma Gandhi said, “Earth provides enough to satisfy everyman’s needs, but not every man’s greed”. It is time to come out of the Himalayan cave of blind trust in the integrity of high-profile people. This pre-conceived notion based on a reflected and long depleted maxim, “If I am OK then others are also OK”, should go.

The modern society has turned extremely aspirational. People want to become rich overnight. They wish to run without perfecting the art of walking. They wish to emulate Usain Bolt to grab millions of dollars by running just 100 meters in minimum time, forgetting that it took twenty-five years of toil and hard work for Usain Bolt to perfect the art of running 100 meters in less than ten seconds. Ambitions are jumping the accepted moral standards and shredding honesty into laughing stocks. After failed attempts in lottery jackpots, many are hitting the smarter and sophisticated looking route of phishing, hacking and online swindling. 

Banking industry has become a soft target for making quick money. Day in and day out the banks are plundered through mountainous frauds. Total frauds at banks have risen 74% to Rs.71,543 cr in 2018-19 as against Rs. 41,167 cr in the previous financial year, as per Reserve Bank of India. The number of cases jumped to 6801 from 5916. The public sector banks accounted for 55.45% of the number of cases and 90.2% of the amount involved. The frauds reflect lack of internal processes, people and systems to tackle the operational risks. The frauds included 13 cases of fraudulent foreign exchange transactions worth Rs. 695 cr. There were 1866 fraud cases involving Rs. 17 cr related to card and internet transactions.

Apart from high profile names like Nirav Modi. Mehul Chowksi, IL&FS, Sivasankaran, Relegare Finvest and PMC Bank a large number of faceless Indians made a quick buck cannibalizing the docile bankers who failed to check, recheck and cross check before embracing the fraudster as a client. Frauds shape because of cheating and forgery, followed by misappropriation and criminal breach of trust. Small frauds less than Rs.1 lac were just 0.1% of amounts involved. It took banks an average of nearly two years to detect a fraud. Large frauds above Rs.100 cr took four and half years to detect.

Alarmed by slow awareness, RBI subjected 57 banks through IT examination to check their cyber security preparedness and compliances. Targeted thematic examinations were carried out, focusing on applications, infrastructure and systems used by banks. RBI also engaged with Ministry of Corporate Affairs to create an interlinked database for fraud monitoring. It brought closer the analytic engines of banks and user interface of fraud registry to create robust monitoring system to curb the menace of frauds. All this resulted in frauds going up by 74% year on year.

Few basic delinquencies/ frauds which reflect bankers look like absolutely dumb and clueless are:-

1. Breaking the first-floor flooring of a bank strong room in Kerala from an empty shop below and looting the pledged gold along with huge cash on a Sunday.

2. Siphoning a major portion of the monthly interest on big ticket loans by diverting  to fictitious current accounts instead of branch P& L account, by fiddling with the software at branch level.

3. Loosing funds from accounts of pensioners by changing the KYC details and mobile numbers through impersonators.

4. Permitting use of banks computers and stationery to outsiders who misused the same for offering high interest rates to un-suspecting corporates. Such letters /emails enumerated fraudulent account numbers for credit of large funds which were swallowed by cheats through such accounts.

5. Permitting access to lockers without verification of the signatures and photographs of the person visiting the branch with locker key.

6. Keeping the keys of safe and strong room hanging on locks through-out the day.

7. Handing over both keys of safe/strong room to same official instead of retaining with two different officials.

8. Not verifying the stocks, sundry creditors, sundry debtors furnished by the borrowers in stock statements.

9. Releasing huge cash to branch cashiers at the time of opening of branch in the morning, which is cunningly loaned by cashiers to traders on hourly basis to convert the same into stocks and then into cash during the day for a fee to cashiers.

10. Installing ATMs in desolate areas without welding their base deep into the ground to protect from being uprooted by tractors/jeeps in the night.

11. Letting the customer take the cheque from passing official to cashier for payment.

12. Financing machines/ cars against unverified invoices and handing over the proceeds of invoice to borrower instead of to supplier which are fake at times.

13. Handing over the title deeds of mortgageable property to the prospective borrower for taking to Lawyer/ Valuer for verification and valuation.

14. Permitting access of data on bank computers to staff through pen drives.

15. Issuing BGs/ LCs in physical forms and handing over to applicants not beneficiaries.

16. Sharing passwords attracting phishing attacks.

Invariably the above transactions have left the banks bleeding seriously thrusting miseries on customers in terms of monetary losses and to staff in terms of carrier progression. The reasons are simple. Poor preventive vigilance, failure of internal systems and refusal to learn from past experience. Vigilance is the reason what makes banks succeed and what makes companies fail. Vigilance should not be a department. It should be the entire company. It is true that a man without a smiling face must not open a shop. When the customer comes first, customer will last. But the familiarity should not be at the cost of compromising security of systems and procedures.

Banks are rated very high by people who trust them more than they trust their relatives and friends. Hard-earned savings of life is retained here. Bankers should redeem this trust and cross check every transaction. People do not care how much you know, until they know how much you care. They expect a good care of public money. They expect bankers to measure a thousand times, cut once. Bankers should do strict gate-keeping to prevent the scrupulous elements from entering banks by applying rigorous KYC grinds. Bank’s doors should not open with many keys. There should not be any melas or mass opening of bank accounts under pressure. It is established now that you unwittingly call one wolf, you invite the pack. It is also paramount that while dealing with public money a banker should tap even a stone bridge before crossing it.

Our leaders want banks to help all segments of society but there is very little effort to educate masses about the importance of repayment of loans. Very few voices are heard that emphasize the role of cyclicality of funds in the economy of a country. Nation cannot progress on failed loans and deserted projects. Bankers should be ever vigilant and not suspicious. Bank funds are wealth of every Indian; efforts should be made to channelize every rupee to build muscularity of masses and not their weakness. Let bankers strive hard and walk extra mile to save public money. There are no traffic jams along the extra mile. The best time to make a new beginning is now.

On a busy Monday people noted a speeding car driver rushing fast breaking traffic rules and jumping lights. A school bus had to swerve to avoid the intruding car and a cart puller lost balance and spilled his pile. The car was ultimately stopped by a traffic policeman who demanded the driving license. The driver stopped reluctantly and pulled out wallet but realized that his license was with police for earlier traffic violation. He showed the receipt and was lucky to be let off with a warning. While leaving, the constable smelt alcohol from his mouth and checked him. The driver immediately flashed a medical certificate certifying him as an alcohol addict. The doctor had entitled him to consume 200 ml of alcohol during day-time activities including driving. Policeman was helpless and reluctantly permitted the driver to proceed. As the driver pressed car ignition, the policeman stopped him again to verify the contents of the car boot and dicky. Reluctantly the driver gave the car key to policeman who was startled to find a dead body there. He got hold of driver and violently admonished with an arrest. The driver pulled out a death certificate of his child issued by a local hospital and said that the taxi and ambulance services in the city were on strike and as the family was waiting for the body, he drove fast. Empathising with the driver, the policeman let him go faster to reach home in time.

The story is not about the humanity of policeman. It actually highlights the vigilance exercised by driver while driving under stress. He hedged himself well by carrying the receipt in lieu of driving license, a medical certificate supporting consumption of alcohol while driving and a death certificate. Armed with proper documentation he risked to reach destination in time. 

Bankers are also taking huge risks, because banking has become an art of risk taking. They are however falling short in hedging their risks. They miss creating adequate documentation and become victims of risks they take by diluting the implementation of policy of “Check, Recheck and Crosscheck”. Banks and bankers are therefore in distress putting customers into turmoil.

Source : https://www.bloombergquint.com/business/rbi-annual-report-bank-frauds-spike-74-in-2018-19-loan-related-incidents-top-the-chart