In a bid to check Nirav Modi-like frauds, bankers on Thursday decided to put in place more robust and secure risk management mechanism within six months to prevent fraudulent activities by unscrupulous elements. The move of bankers came following the aftermath of the country's largest bank fraud of Rs 12,968 crore allegedly perpetuated by fugitive Nirav Modi.
Besides, all public sector lenders will have to link their SWIFT systems with their respective Core Banking Solution (CBS) systems by April 30 as a measure to prevent frauds like the recent one perpetrated on Punjab National Bank (PNB), it was announced on Thursday.
All public sector banks have verified loUs issued by them, and there are no other unauthorised authority letters except for those issued by PNB, State Bank of India Deputy MD MS Sastry said.
It is important to note that the major incident that took place recently in one of the branches of a public sector bank is one of its kind in about 5,000 branches, dealing in foreign exchange in the entire banking system in India, he said.
Addressing the media after three-day deliberation, he said, banks will be putting up their action plan to respective boards and in three to six months action plan would be implemented by all the banks.
Action plans are drawn to further strengthen the controls in the areas of trade finance, SWIFT, credit risk, operational risk besides cyber and IT risk. Banks will now place these action plans with timelines for implementation and improvement before the respective boards, he said.
“Further controls have also now been put in place that includes additional layer of approval for all outward swift messages, integration of SWIFT with CBS latest by April 30, 2018 besides time restrictions for such transactions i.e. between 9 am to 8pm only,” Sastry said.
“All the Chief Risk Officers, Executive Directors and Chief Technology Officers of the public sector banks came together to review what are the best practices from risk management we have and also compiled a list of best practices so that individual banks can go back and review where there is room for improvement,” he said.
The meeting follows the Finance Ministry directives on February 27 to the state-owned banks to come out within 15 days a pre-emptive action and identify gaps/weakness to gear up for rising operation and technological risks.
The revised processes are robust and go a long way in checking fraud, said Bank of Maharashtra Executive Director RK Gupta.
“It was also agreed that all banks will henceforth follow the uniform approach for certain common covenants. In addition, banks will further strengthen their mechanism with regard to the early warning signals,” Gupta said.
Speaking about the review of all the letters of undertakings and letters of comfort, Sastry said there are no other unauthorised fraudulent letters of undertakings and letters of comfort other than those which are already reported.
“This is one assurance on behalf of all public sector banks that we are giving that thorough review has been made and there are no other unauthorised fraudulent letters of undertakings or letters of comfort found except those which are already reported,” he added.
During the workshop, Gupta said, participants also debated on the common areas for strengthening credit process.
Improving risk awareness and ethical awareness amongst staff, preventive monitoring and surveillance of transactions, strengthening Know Your Employee (KYE) through technological intervention are some of the action points identified to further strengthen operational risk management, he said.