Fraught by frauds
The recent high profile fraud cases in our banking sector have deeply jolted all the stakeholders and have once again highlighted the vulnerability of our banks, specially while dealing with corporate loans and celebrity industrialists who manipulate the banking system by conveniently bypassing protective mechanisms.
Successful economies minimise corruption, embezzlement and frauds which are characteristics existing everywhere but unfortunately for us, the instances of banking frauds which are a silent killer of our economy only seem to be on the rise as a result of corruption, inefficient regulations, lack of oversight, business pressures to meet unreasonable targets, lack of tools to identify potential red flags and collusion between employees and external parties.
Whether it’s issuance of fake LoUs by two junior employees (as in case of PNB) or conflict of interest on the part of CEO ICICI Bank, it’s amply clear that our banking industry is confronted with deep internal threat wherein anyone from a CEO to lower level employees can manipulate and defraud their bank while both internal and external auditors look the other way. Such high profile frauds , scams and wilful defaults have a detrimental impact on the economy and ease of doing business, employees morale and investors' confidence.
Indian banking has always been a soft target for fraudsters and in recent years the frequeny, volumes and gravity of frauds and wilful defaults have only seen a rise.
We as a developing nation cannot afford such setbacks and need to get our act together. Fraud risk management needs to be given utmost importance and diligence in order to prevent and detect fraudulent activities thereby limiting the losses incurred. The banks need to be more agile and think ahead of the fraudsters. A comprehensive and effective anti frauds programme comprising preventive, detective and responsive mechanism can enable banks to identify weaknesses inherent to their processes and identify new threats.
Over the years, frauds and scams in this sector have become more sophisticated and hence, their redressal is a major concern. Banks need to make themselves secure, become vigilant and build resilience in order to beat fraudsters in this cat and mouse chase.
It is important for banks and financial institutions to understand that fraud investigations require specific skills like forensic accounting and technology to collect adequate evidence which needs to be relevant and comprehensive to be admissible in a Court of Law. Other important aspects like source of evidence, legitimate witness, electronic evidence can add credibility to the case. If these are not in line with legal requirements, the organisations will not have confidence to take legal recourse against the fraudster which can also be the reason why many banks may not be reporting all their cases to law enforcement agencies.