Deputy Governor of the Reserve Bank of India R. Gandhi said that the government’s recent move to encourage electronic transactions in favour of cash dealings was a welcome step and that it would help in curbing banking fraud cases.
“The government’s move to encourage electronic transactions will help curb banking fraud because such transactions have a clear trail and any culprit of fraud can be tracked easily,” Mr. Gandhi said on Friday on the sidelines of the second National Conference on Financial Fraud organised by Assocham.
Earlier this month, the government released a draft proposal that, if accepted, would see income tax benefits for consumers, who predominantly use electronic transactions for payments . The draft proposal also sought to incentivise merchants to opt for e-payments rather than cash transactions.
The Deputy Governor, during his speech at the conference, also said that deposit-related frauds were on the wane, while advance-related frauds and cyber frauds were on the rise.
“Deposit-related frauds, which used to be big in number though not in size, have been on the wane, thanks to the improvements in cheque and payment processing, usage of technology and tightening the provisions of the Negotiable Instruments Act. The advances-related frauds continue to be the major concern for banks, especially because of their size and far reaching implications to their financial soundness and integrity,” he said. “A special variety of frauds, which are increasing in number and in terms of speed, are the cyber frauds,” Mr. Gandhi added.
KYC proceduresA key step towards curbing such cases of fraud, he said, was improving banks’ KYC (Know Your Customer) procedures. “When one thinks of KYC norms frequently the emphasis is on the different type of documents to be obtained from an account holder that will establish that KYC norms have been followed. In a scenario where many frauds are committed by submitting forged and fabricated documents, such an emphasis is too narrow and will result in us missing the wood for the trees,” he said.
Apart from these steps, banks should make an effort to really know their customers — their backgrounds, stated activities or profession, their signature style of operation and digital footprint in the case of online transactions, etc.
This would allow a bank to draw up a robust customer profile and put up a red flag if there is any exception to the norm, Mr. Gandhi said in his speech.
Apart from this, banks should invest in knowing their employees — since a lot of the fraud cases take place with inside help — and know their partners.
Towards the end of the event, Mr. Gandhi also spoke to reporters about the proposed recapitalisation of banks by the government. “We have been voicing our concern about capital infusion; right now banks are adequately capitalised, that is all right. But what we have been telling the banks and the government is that, going forward, keeping the future growth that is likely to come in the economy and also based on the Basel III norms, additional capital will be needed,” he said.
