The Rs 11,500 crore fraud in state-run lender Punjab National Bank (PNB) has brought back the importance of Know Your Employees (KYE) norms for banks, an issue which lenders, mostly the public sector ones, shown little interest to implement.
As early as in 2005 when the banking sector was in the initial stages of adopting technology, Reserve Bank of India (RBI) has highlighted the importance of know your employee KYE for banks as a firewall against frauds committed in connivance with employees.
Unauthorised LoUs
The latest scam at PNB involves issuing unauthorised Letters of Undertaking (LoUs) in favour of companies for availing buyers’ credit, which was done in connivance with a former employee and a present employee of the bank.
In September 2005, the central bank had cited the recent cases of technological mishaps resulting in mainly employees or ex-employees of banks induced financial losses which has also damaged the reputation reputation of banks.
G Padmanabhan, then chief general manager of RBI urged the banking community to enforce such a system not only prior to the recruitment of the employee but even more vigourously thereafter.
The response from public sector banks for adopting KYE policy has not been encouraging.
Rahul Belwalkar, CEO, SecUR Credentials - a listed background screening company, says proper and systematic employee background verification is the need of the hour but the number of public sector units that opt for background are low in India because human resources practices have not evolved and there is a resistance for a change.
“We also suspect that there are push backs from unions as well because of which HR policies haven’t changed in a while. There has been a rise in number of private sector banks and NBFCs that are not only conducting background screening but are also doing regular credit checks on their employees who at the end of the day handle large amounts of clients’ money,” Mr Belwalkar said.
Not only the banking regulator but the central vigilance commission (CVC) has also talked about the importance of KYE recently.
According to a vigilance manual released last year, CVC said that several frauds are insider jobs or perpetrated with the help of insiders. It had asked banks have to take extra care to have continuous vigil on their staff and highlighted the need of KYE and Know Your Partner norms.
“Know your employee is important in all industries, but more so for banks which deals with confidential personal data and money,” said Tarun Bhatia, Managing Director, Investigations And Disputes, Asia Pacific, Kroll.
“The business of banks is all about trust and the bank is responsible for ensuring that both the information and funds of the customers are safe,” Mr Bhatia said.
The Kroll’s Global Fraud and Report has highlighted that while more than 75% of respondents in India suggest that they had implemented employee screening process, these are very generic and don’t provide relevant inputs related to an employee’s background and character.
The study further said the reference checks carried out are a mere check box approach providing limited information about the employee.
“At senior levels, the scrutiny should be even more as business leaders are influencers and a wrong hiring can cause significant monetary and reputation damage to banks. Banks are accountable for the actions of their employees and accordingly need to invest in hiring not just the best talent but also reliable and trustworthy resources,” Mr. Bhatia added.
