RBI asks banks to link internal software with SWIFT for closer scrutiny
24 February 2018
Reserve Bank of India (RBI) has asked all banks to link their internal software with the SWIFT interbank messaging system by the end of April, and to alter some of the current procedures in order to have closer scrutiny of the dealings at these banks.
The move that follows the spate of bank frauds, including the $1.77-billion fraud at Punjab National Bank (PNB), is part of the RBI's ongoing efforts for strengthening of the supervisory framework for the banking system.
The risks arising from the potential malicious use of the SWIFT infrastructure, created by banks for their genuine business needs, has always been a component of their operational risk profile. RBI had, therefore, confidentially cautioned and alerted banks of such possible misuse, at least on three occasions since August 2016, advising them to implement the safeguards detailed in the RBI's communications, for pre-empting such occurrences. Banks have, however, been at varying levels in implementation of such measures.
''In the wake of SWIFT-related fraud involving significant amount, reported recently by Punjab National Bank, RBI has reiterated its confidential instructions and mandated the banks to implement, within the stipulated deadlines, the prescribed measures for strengthening the SWIFT operating environment in banks,'' RBI stated.
Further, in view of large divergences observed in asset classification and provisioning in the credit portfolio of banks as well as the rising incidence of frauds in the Indian banking system, RBI has decided to constitute an expert committee under the chairmanship of Y H Malegam, a former member of the Central Board of Directors of RBI, to look into the reasons for high divergence observed in asset classification and provisioning by banks vis-à-vis the RBI's supervisory assessment, and the steps needed to prevent it.
The committee will look into factors leading to an increasing incidence of frauds in banks and the measures (including IT interventions) needed to curb and prevent it as well as the role and effectiveness of various types of audits conducted in banks in mitigating the incidence of such divergence and frauds.
The members of the committee include Bharat Doshi (member, Central Board of Directors, RBI) S Raman (former chairman and managing director of Canara Bank and former whole-time member of Sebi) and Nandkumar Saravade (chief executive at Reserve Bank Information Technology Pvt Ltd (ReBIT). A K Misra, executive director, RBI, will be the member-secretary of the committee.
While RBI has denied that it has directed PNB to meet its commitments under the Letter of Undertaking (LoU) to other banks, the central bank said the fraud in PNB is a case of operational risk arising on account of delinquent behaviour by one or more employees of the bank and failure of internal controls. RBI has already undertaken a supervisory assessment of control systems in PNB and will take appropriate supervisory action.