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RBI Says It Had Warned Thrice About Abuse of Tech Employed in Nirav Modi Scam

In a note to the banks, the RBI on Tuesday reiterated its "confidential instructions" and said these must be done within the stipulated deadline.


Updated:February 20, 2018, 9:35 PM IST
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RBI Says It Had Warned Thrice About Abuse of Tech Employed in Nirav Modi Scam
Reserve Bank of India (RBI) head office in Mumbai. (Image: Reuters)

New Delhi: The Reserve Bank of India on Tuesday said it had alerted banks on the potential malicious use of SWIFT infrastructure on at least three occasions since August 2016. The platform was used by Punjab National Bank officials for the alleged fraudulent loan transactions.

"The risks arising from the potential malicious use of the SWIFT infrastructure, created by banks for their genuine business needs, has always been a component of their operational risk profile. RBI had, therefore, confidentially cautioned and alerted banks of such possible misuse, at least on three occasions since August 2016," an RBI notification stated.

The statement comes as the RBI has been under the spotlight after PNB disclosed last week it had been hit by a Rs 11,400 crore loan fraud. On Monday, the central government had written to the RBI, flagging doubts over supervisory lapses in the scam and asking how the fraud went undetected for so many years.

The RBI has now asked banks to implement measures to strengthen the SWIFT operating environment within a deadline, and also set up a committee to look into factors leading to increased number of frauds.

In a note to the banks, the RBI on Tuesday reiterated its "confidential instructions" and said these must be done within the stipulated deadline.

The apex bank further said in view of large divergences observed in asset classification and provisioning in the credit portfolio of banks as well as the rising incidence of frauds in the Indian banking system, it has been decided to constitute an Expert Committee under the chairmanship of YH, Malegam, a former member of the Central Board of Directors of RBI.

The committee would look into the reasons for high divergence observed in asset classification and provisioning by banks vis-à-vis the RBI's supervisory assessment, and the steps needed to prevent it; factors leading to an increasing incidence of frauds in banks and the measures (including IT interventions) needed to curb and prevent it; and the role and effectiveness of various types of audits conducted in banks in mitigating the incidence of such divergence and frauds, the apex bank said in a press release.

The members of the committee will be: Bharat Doshi, Member, Central Board of Directors, RBI; S Raman, former Chairman and Managing Director, Canara Bank and former Whole-Time Member, SEBI; and Nandkumar Saravade, Chief Executive Officer, Reserve Bank Information Technology Pvt Ltd (ReBIT).

A K Misra, Executive Director, RBI will be the Member-Secretary of the committee.

Keeping in view the PNB fraud, the RBI said as part of its ongoing efforts for strengthening of the supervisory framework in the country, it has been issuing necessary instructions to banks from time to time on a variety of issues of prudential supervisory concern, including the management of operational risks inherent in the functioning of banks.

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