Bank frauds: a few suggestions for bankers and the public

IT IS said that no sound is produced by clapping one hand! This is the case with bank frauds as well. Supervision is a fundamental requirement for banking transactions. The conventional Scottish bankers knew this well and that is why every bank has both clerical and supervisory staff, the former carries out the original work and the latter supervises them.

With mass banking yielding place to class banking, there has been an erosion in the quality of bank administration. Recruitment and training also posed new challenges to the banking system. Handling large volumes has been the headache of all bank managements. Even today, the technological advancements claimed by Indian banks have not touched the fringe of the problem. This is evident from the large number of customer complaints received. Most banks have their customer complaint cells which find it difficult to satisfactorily dispose of the complaints. There are many unreported complaints too. This is perhaps the case with all service organisations but it cannot be an answer especially for a bank which deals with other people's money.

Going back to the subject under discussion, all banks have laid down procedures for handling customers. To begin with, the opening of an account, which is the entry point for the customer, cannot be done without introduction from an existing account holder. The introducer has to, in fact, call on the bank and both the prospective customer and the introducer have to affix their signatures before the bank official designated to authorise opening of new accounts. Where the introducer does not come to the bank, a letter of thanks is required to be sent to him to prevent someone forging the signature. Photographs of the account holder or holders are prescribed by the Reserve Bank of India to remove chances of benami accounts. Bank officials are directed to watch newly opened accounts as to their turnover, proper use of cheque books issued, and correctness of specimen signature on the cheques drawn.

Where frauds can occur

As to fraudulent transaction by a customer, the opening of an account itself can be with the intention of committing a fraud. In a newly opening branch where the manager and staff will be eager to improve business, fraudsters will be more on the prowl and use the opportunity to entice the branch with promise of huge deposits. They will try to lure bank officials by showing large cheques/deposit receipts. These tricksters create confidence in the minds of bank officials by giving deposits or introducing local bigwigs and subsequently vanish after defrauding the bank either through return of cheques or excess drawings. The new branches also face the risk of someone opening accounts solely for encashing stolen or forged cheques.

In some metros, there are gangs which intercept postal instruments and encash them through duplicate accounts opened with these branches. Stealing of drafts issued for small amounts and encashing them after altering either the amount or the payee's name is another modus operandi adopted.

Strictly following the requirement of introduction for opening a new account at a newly opened branch is not practical as the new accounts are mostly opened on the personal acquaintances of the branch staff themselves. The so called acquaintance may turn out to be casual and not reliable. Sometimes even the introducers are casual. They affix their introductory signature without fully understanding the implications and the consequences in the event of a fraud. Legally, the introducer cannot be held accountable for the fraud.

Apart from new accounts, the other areas of fraud are stealing of cheques and drafts, printing of draft forms, customer's agents or family members forging the signatures of the authorised persons and siphening off amounts from the accounts. Leaves are surreptitiously removed from cheque books and made use of.

The other major area is loans and advances. This is basically the handiwork of unscrupulous elements. Misuse of bank loans is not a new phenomenon. This is also not limited to any sector or size of loan. Bank loans are sanctioned against specific security and for specific purposes but diversion takes place due to various reasons and the security is either diluted or altogether misused.

Traffic violations take place when there is no police official to watch and regulate. Similar is the case with bank supervision. In the absence of stringent laws to punish the guilty, fraudsters will thrive. As the old saying goes, prevention is better than cure, and this is hundred per cent true in the case of bank frauds too. Laxity in supervision and non-fulfilment of laid down regulations will give room for unscrupulous elements to create chaos.

A series of frauds in banks can lead to loss of credibility and people may lose faith in the banking system.

A few suggestions for bankers: do not be lured by deposits; do not give opening day deposit targets to branch managers; do not open any account on the opening day of a branch, have only a simple function; open accounts of only those personally known to the manager, initially; insist on the parties to sign forms and documents in your presence; issue cheque books ensuring proper acknowledgement; collect cheques and other instruments for only such accounts which are properly introduced; keep security documents in proper custody, as laid down by the bank; do not repose more than necessary confidence in any one and do your checking duties without exception.

For the public: do not open too many accounts in too many banks; keep your cheque books and passbooks under lock and key; make it a point to obtain your cheque books from the bank in person; if you have to get the cheque book through a third party or by post, please check the leaves meticulously; when you draw a cheque, be meticulous in writing the amount in words and figures so that no room is given to add anything; if you are sending any written cheque by post, please cross it and send the same by registered post only. Introduce a per son to a bank for opening an account only after satisfying yourself about the genuine need thereof; never sign a blank account opening form; ensure that all prospective accountholders are personally known to you; note that the bank values your introduction and depends on you for the genuineness of the customer you introduce to them and banking is a matter of trust. Ensure this at all times.

K. Sukumaran

Send this article to Friends by E-Mail

Section  : Business
Previous : Mumbai group planning project in Fujairah Free
           Zone
Next     : Ramco Industries' NCD gets MAA