Why is it that Bank frauds and financial crimes are so frequent and people committing the economic crimes are not even afraid or ashamed?
We are living in a Big Boss house where there is no fear of doing something that is immoral or unethical and everything goes (right under the focus of close circuit TV’s). It this world though Laxmi and Saraswati co-exist they have no qualm in gossiping against each other. Laxmi being elder always tries to dominate and bully, while Sarasvati doesn’t even know how to retaliate. This is nothing unusual as white or blue-collar crimes are always going to happen. Sex and crime are a frequent occurrence in any society more so when the laws are absent, slack, not being enforced properly or easy to break.
So can we infer that white collar crimes are bound to happen and inevitable?
Yes the frequency of such incidents tends to increase when everything is a deal that money can buy. A growing trend when crimes are fun- easy to commit, pays good returns and culprits can expect to go scot free. People often say that prevention is better than cure, but the biggest drawback in our financial system is that customers, bankers, economists, cybercrime investigators, forensic scientists, lawyers, auditors, chartered accountants, statisticians, investors and analysts do not have a common objective or goal. They are too short-sighted, ignorant or careless to foresee future bottlenecks that may lead to collapse of the economy and sudden speed breakers on the way in future.
What is fit or a sort preconditioned to be called a bank?
Purchasing or renting an empty or occupied building in any locality and fixing a board on top- does not make it a bank till at least a few customers who trust it enough – to deposit their savings or invest in Mutual Funds, FDs, Demat or Recurring Deposits as well as withdraw money or apply for a loan.
Banks don’t own all the money in their currency chest. It is property of the account holders. The bankers –are just custodians of the money invested by the account holders. It is officially the money invested by the account holders and the banks and bankers are duty bound to return it with interest. Within the banking sector too the state-owned public sector banks are the weakest but instead of putting them on a high protein diet we are just concerned about the defaulters.
Don’t you think that today we might be talking about a Harshad Mehta, Ketan Parekh, Jignesh Shah, or Nirav Modi: tomorrow it might be another wolf in a sheep skin?
Of course yes. According to a RBI report called ‘Trends and Progress of Banking 2018-19’ Public sector banks are most unsafe and account for 56% – i.e. more than half the frauds cases and more than 90% of the amount involved. This is a sign of the weakness in the system to create a foolproof internal security alarm that even a usually unsuspected insider cannot breach. In a communique the RBI admitted that the total volume of money involved in bank frauds today is around Rs 72,000 crore as compared to Rs 41,000 crore last year. Likewise the 6,000 odd fraud cases are higher than the 5,900 cases last year. This shows that crime continues to pay and if it is relatively easy to commit and rewarding or at least presumed to be so—the crime is bound to be committed repeatedly and that too by more number of people.
Why are Indian bankers reluctant to report frauds?
The public perception of a fraud is a Nirav Modi-style financial fraud or crime illegally committed by a crook with dishonest. Today the biggest worry for a banker is corporate fraud and bad loans due to an economic downturn. The crux of the problem is that banks are hesitant to report frauds.
Why don’t the bankers hesitant to report frauds?
Nobody wants to be caught with their pants down. Bankers are human too. It is not that we don’t have systems in place but the real problem is that no one wants to do their job and people like to blame others.
Would you like to comment on the code of conduct laid down by RBI?
The RBI has issued directions to provide a framework to enable banks to detect and report frauds early and take timely actions like reporting to the Investigative agencies so that fraudsters are brought to book early, in addition of staff accountability and effective fraud risk management. The Reserve Bank of India (RBI) has issued instructions to banks to maintain details of frauds, unscrupulous borrowers and incorporate preventive measures, standard operating procedures and internal checks.
According to you what is the crux of the problem?
Well the situation is like – If owe something to the bank it is my problem but if the bank owes anything to me, even that too is my problem. This is the reason why corporate defaults are piling up like mountains out of mole hill. In light of the above we are all trapped in a bottomless sinkhole and banks behave differently with savings, or current account holders, as well as senior citizen. Someone who walks in to invest money in a FD, Mutual Fund gets the attention which another person who came to withdraw, or borrow his own hard earned money simply stocked there does not get. Is this legally, morally and ethically correct?
In the event of a fraud being detected banks are expected to file a complaint with the law enforcement agencies as delays may result in loss of relevant ‘relied upon’ documents, disappearance of prosecution or defense witnesses and besides the money trail getting cold
What needs to be done to prevent this from happening?
It has been observed that banks do not have a focal point for filing CBI / Police complaints. As a result the complainant has to follow a different channel to proceed with the case in the banks and investigative agency and within them too deal with different levels of authority. This is among the most important reasons for delay in registration of FIRs. This is also why banks should appoint a nodal officer for filing all complaints with the CBI on behalf of the bank and provide a single window for coordination and redressal of infirmities in the complaints.
What are the essential requirements that need to be followed while registering a FIR?
The complaint lodged by the bank with the law enforcement agencies should be drafted properly and vetted by a legal officer. It is also observed that banks sometimes file complaints with CBI / Police on the grounds of cheating, misappropriation of funds, diversion of funds etc., by borrowers without classifying the accounts as fraud and/or reporting the same to RBI. This constitutes the basis for classifying an account as fraudulent one; banks should classify such accounts as frauds and report the same to RBI.
What is the remedy for this?
The penal provisions against wilful defaulters should also apply to the fraudulent borrower including the promoter director(s) and other whole time directors. As far as raising funds from the banking system or capital markets by the companies they are associated with is concerned borrowers who have defaulted and committed a fraud in the account should be debarred from availing bank finance from Scheduled Commercial Banks, Development Financial Institutions, Government owned NBFCs, Investment Institutions, etc., for a period of five years from the date of full payment of the fraud. After this period, it is for individual institutions to take a call on whether to lend to such a borrower. The penal provisions would apply to non-whole time directors (like nominee directors and independent directors) only in rarest of cases based on conclusive proof of their complicity.
