Banks to adopt risk management system in 6 months to prevent frauds

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Bankers have decided to put in place more robust and secure risk management mechanism within six months to check fraudulent activity by unscrupulous elements in the aftermath of the country’s largest bank fraud of Rs 130 billion allegedly perpetuated by Nirav Modi. All public sector banks have verified LoUs issued by them, and there are no other unauthorized authority letters except for those issued by PNB, State Bank of India Deputy MD M S Sastry said.

It is important to note that the major incident that took place recently in one of the branches of a public sector banks is one of its kind in about 5,000 branches, dealing in foreign exchange in the entire banking system in India, he said. Addressing 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. 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’s Executive Director R K 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 unauthorized 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 through review has been made and there are no other unauthorized 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.

According to Sastry, banks are in the process of establishing Onsite Cyber Security Operation Centre (C-SOC) wherever not in place to monitor all IT assets. Banks are committed to provide Enhanced Access and Service Excellence (EASE) to all customers in a safe and secured environment, he added.

As part of a drive to clean the banking system, the finance ministry earlier this month had directed public sector banks (PSBs) to probe all NPA accounts of over Rs 50 crore for possible fraud and accordingly report the cases to CBI. Besides, the ministry had asked banks to monitor loans above Rs 250 crore and red flags whenever the original covenants of the loans are violated. This was spelt out as part of six-point-reform measures announced for PSBs in January.