Seminar on Banking Scams

SUBMITTED TO:
MS. SHIKHA

SUBMITTED BY:
MADHAV KALIA
B.COM SEM 4
CLASS ROLL NO. 635
GNDU ROLL NO. 10851722798
 Introduction
 Banks are an essential part of the Indian economy.
 While the primaryresponsibility for preventing frauds lies
with banks themselves.
 Banks are dealing with public's money and hence it is
imperative that employees should exercise due care and
diligence in handling the transactions in banks.
 The RBI has been advising banks from time to time about the
major fraud prone areas and the safeguards necessary for
prevention of frauds.
Definition of Fraud
 Fraud can loosely be defined as “any behaviour by
which one person intends to gain a dishonest
advantage over another“ fraud, under section 17 of
the Indian contract act, 1872,
 RBI not defined the term “fraud” in its guidelines
on frauds which reads as under.
 “A deliberate act of omission or commission by any
person, carried out in the course of a banking
transaction or in the books of accounts maintained
manually or under computer system in banks,
resulting into wrongful gain to any person for A
temporary period or otherwise, with or without any
monetary loss to the bank”.
Number of frauds cases reported by
RBI regulated entities
(No. of cases in absolute terms and amount involved in Rs. crore)

Sl. No. Category No. of cases Amount involved

1 COMMERCIAL BANKS 169190 29910.12

2 NBFCs 935 154.78

3 UCBs 6345 1057.03

4 FIs 77 279.08

176547 31401.01
5 Total
Bank group wise fraud cases reported
as on march 31, 2013
Year-wise and amount of fraud cases
in the banking sector
(No. of cases in absolute terms and amount involved in Rs. crore)
Sl. No. Year No. of cases Total
amount
1 2014 – 15 24791 2037.81

2 2015 - 16 19827 3832.08

3 2016 - 17 14735 4491.54

4 2017 - 18 13293 8646.00

5 Total frauds reported as of march 169190 29910.12

2018
REASONS FOR
BANKING
SCAMS
• Lack of oversight by concerned officer’s w.r.t. deviation management: With
existing systems and
• procedures clearly defined, it is the onus on the senior management to allow
specific deviations. Lack of
• seriousness and knowledge regarding the same may create havoc and lead to a
fraud.
• Frauds In Indian Banking: Aspects, Reasons, Trend-Analysis And Suggestive
Measures
• KYC requirements are compromised. RBI has recently fined banks for
non-adherence to KYC norms.
• This takes another month or so. During this lean period, fraudsters open deposit
accounts, deposit forged stolen cheques and withdraw the amount.
• Increasing business pressure on staff: Margins, profitability and shareholders
expectations being under strain.
• Staff may use unscrupulous methods to achieve their respective targets.
• Lack of tools to identify potential red flags: Some organisations even if they have
the correct, agile and educated managers.
• The symptoms of poor internal control systems increase the chances of frauds.
Internal control symptoms include a poor control environment.
 Reporting of frauds to RBI
Frauds involving amounts of less than Rs 1.00 lakh:
 less than Rs 1.00 lakh are not to be reported individually to the
RBI.
 Statistical data in respect of such frauds should,be
submitted to RBI in a quarterly statement.
Frauds involving amounts of Rs 1.00 lakh and
above but less than Rs 25.00 lakh:
 Frauds involving amounts of Rs1.00 lakh and above but less
than Rs 25.00 lakh should be reported to the regional office of
urban banks department of RBI .
 In the format given in FMR-1, and within three weeks from the
date of detection.
 Frauds involving amounts of Rs 25.00 lakh and above :
frauds involving amounts of Rs 25.00 lakh and above should
be reported to central frauds monitoring cell, department of
banking supervision, RBI.
 A copy of FMR-1 should also be submitted to the regional
office of urban banks department of RBI.
 In addition banks may report the fraud by means of D.O. Letter
addressed to the principal chief general manager of the
department of banking supervision, RBI, central office.
 The letter may contain brief particulars of the fraud.
 Letter should also be endorsed to the regional office of urban
banks department of RBI under the bank's branch.
PNB SCAM
``Shining Diamond
trader took
away PNB's
Shine."
 INTRODUCTION
 On 29th Jan,2018, PNB (Punjab National Bank) filed a criminal
complaint with India`s federal investigative agency against
three companies and four people, including billionaire
jeweller Nirav Modi and his uncle Mehul Choksi, the
managing director of Gitanjali Gems, saying they had
defrauded PNB and caused a loss of 2.8 billion rupees ($43
million).
 In a regulatory filing on Feb. 14, the bank updated the sum
involved in the fraud to 113.94 billion rupees ($1.77 billion),
which it said was determined after further investigation at its
Mumbai's Brady branch.
 This fraud is done by Nirav Modi in 2011 who fraudently
raised funds worth of Rs.12,636 crore from various public
& private sector banks by showing Letter of
Undertaking(LOU) issued by Punjab National Bank.
 PERSONS INVOLVED IN SCAM
 Nirav Modi – Nirav Modi is the Owner of Nirav Modi firm, Diamond
RU.S.,Stellar Diamond and Solar Exports and the prime accused in this
scam.
 Mehul Choksi – Mehul Choksi is the Owner of Gitanjali Group and the
uncle of Nirav Modi.
 PNB Employees - Gokul Nath Shetty (Retired Deputy Manager), Manoj
Kharat (Clerk), Hemant bhat (Clerk and Authorised Signatory), Bechhu
Tiwari (Forex dept.Chief manager),Yaswant joshi, Praful sawant ( They
were trying to shift the blames to their colleagues.)
 MK Sharma – Internal Auditor and chief manager of PNB.
 Vipul Ambani – CFO of Nirav Modi Company.
 Kavita Mankikar - Executive Assistant and Authorized Signatory.
 Arjun Patil – Senior Executive of Fire Star Group.
 Kapil Khandelwal - CFO of Nakshtra and Gitanjali Group.
 Niten Shahi – Manager of Gitanjali Group.
 Rajesh Jindal: General Manager of PNB . He has
headed Brady Branch in between 2009-11.
 Bishnubrata Mishra: Formar internal auditor of PNB.
He was responsible for
auditing the transactions between 2011-15.
 Miten Anil Pandaya: Financial Manager of Firestar
International Ltd.
 Sanjay Rambiya: CA firm Sampat & Mehta partner.
EFFECT OF SCAM ON PNB & OTHER
PUBLIC SECTOR BANKS
 Moody and Fitch places PNB under review for downgrade. Moody’s has
rated PNB ‘Baa3’ and Fitch has rated ‘bb’.
 The stock price of PNB has fallen down from Rs.160 to Rs.95.5 as on 9th
Mar,2018.
 The NIFTY Bank also fallen down 25810.25 to 24477.65 (1332.66 Points).
 RBI has said to PNB to pay all debts to other banks.
 The share price of Gitanjali Gems fallen down from Rs.64.2 to Rs.15.8 as on
09th Mar,2018
 Sanjay Rishi (AmericanExpress), Gautham Mukkavilli (Ex.Executive
pepsico), Suresh senapaty (Ex.CFO of Wipro), Kirthiga reddy (Ex.MD of FB
India)resigned from Nirav modi’s Firestar Co. board.
 The RBI stops banks to issue LOU.
 Because of the fraud, PNB has lost Trust of People.
 Gitanjali Gems Share price fallen to 11.15 from 63.55(open price) as
on 14.2.2018.
 CURRENT STATUS
LONDON: UK Home Secretary Sajid Javid has certified
India's extradition request for fugitive diamantaire Nirav
Modi, wanted in the Rs 13,500 crore Punjab National Bank
(PNB) fraud case, officials involved with the proceedings in
the UK confirmed on Saturday, even as he was tracked
living openly in a swanky 8-million pound apartment in
London's West End and running a new diamond business.

Under the India-UK Extradition Treaty arrangements, the

paperwork is now with the District Judge.
Vijay Mallya-King Of Bad
Times
• A year later, it had multiplied to Rs 5,665 crore. Its net losses widened from
Rs 188 crore in 2007-08 to Rs 1,608 crore the following financial year.
• As crude prices soared towards $140 a barrel, the global aviation industry
too was facing a crisis
• In 2008, the International Air Transport Association (IATA), the global
aviation industry body, estimated losses of $5.2 billion.
• For airlines in India, the hit was much harsher with taxes and levies
topping oil prices.
 Current Status
Mallya, whose now-defunct group company
Kingfisher Airlines owes over Rs 9,000 crore to 17
banks, had left the country on March 2 and is in the
UK.

The 63-year-old businessman, who remains on bail on an

extradition warrant in the UK, made the application in
the Administrative Court division of the High Court on
Thursday
MEASURES SHOULD BE TAKEN
TO AVOID SCAM
 Multi Factor Authentication.
 Monitor Transactions.
 According to RBI guidelines, every commercial banks should link
their CBS with SWIFT by April 2018.
 Implementation of Anti-Money Laundering.
 Rotation of employees in every three years.
 NFRA is established by government which is an independent
regulator for the
auditing profession.
 Better Management Control.
 Cyber Analytics/Cyber Security.
 Fraud Monitoring.
 Customer identification, authentication and risk assessment.
 Financial Intelligence.
THANK YOU