BANKS MULL HIGHER COVER AGAINST EMPLOYEE FRAUD

New Delhi, Feb. 25: Rattled by a spate of frauds in the banking sector, lenders are now planning to increase insurance cover against delinquencies by their employees to protect their bottomlines.

“Frauds of such magnitude and scale — PNB fraud `11,400 crore and OBC fraud `390 crore — has forced us to consider substantially much higher risk cover than the basic banker's indemnity policy which various banks have right now,” a top official said.

Besides, tightening 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 `2 crore which would not cover even 0.2 per cent of `11,300 crore 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 `390 crore from Oriental Bank of Commerce was registered against a diamond jewellery exporter.

With faith on their internal audit system and risk management, banks were not keen for higher cover but a series of frauds have compelled them and in the Indian Banks’ Association meeting also the issue came up for the deliberation, an official said.