BANKS FOR RAISING COVER AGAINST FRAUD BY STAFF

Rattled by a spate of fraud in the banking sector, lenders are planning to increase insurance cover against delinquencies by their employees to protect their bottomlines.

“Frauds of such magnitude and scale — Punjab National Bank (PNB) of ~114 billion and Oriental Bank of Commerce (OBC) fraud of ~3.9 billion — has forced us to consider substantially much higher risk cover than the basic banker’s indemnity policy, which various banks have right now,” a public sector bank official said. Beside, tightening of the internal risk mechanism and vigilance, banks have to look for higher cover to guard against such fraud where employees are involved, the official said, adding, this will help insulate the balance sheet.

PNB had only bought a basic banker’s indemnity policy, which covers employee fraud, to the extent of ~20 million which would not cover even 0.2 per cent of ~113 billion fraud done allegedly by Nirav Modi, Mehul Choksi and his associates, in connivance with officials of a Mumbai branch. Soon after this, a case of alleged swindling of ~3.9 billion from OBC was registered against a Delhibased diamond jewellery exporter. In between, there was a fraud case of ~36.9 billion by Rotomac Pen company owner Vikram Kothari, in which the CBI filed cases and effected several arrests. For example, State Bank of India alone in 2016-17 reported frauds of ~24.2 billion (837 cases). Out of this, an amount of ~23.6 billion (278 cases) represents advances declared as frauds.