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Banking Central | Dear customer, know your bank frauds

‘Updating’ KYC is the oldest trope in criminals’ busy book of tricks to steal your money. Keeping yourself informed and resisting the temptation of ‘quick returns’ is the best way to protect your hard-earned money

September 27, 2021 / 03:33 PM IST
Representative image (Source: ShutterStock)

Representative image (Source: ShutterStock)

Early this month, the Reserve Bank of India (RBI) issued an advisory alerting the public about frauds being perpetrated in the name of updating “know your customer (KYC)” details.

There has been a rise in instances of fraudsters contacting customers, warning them about the consequences of inadequate KYC compliance. As gullible customers share account details and personal information, these wipe customers’ accounts clean.

"The usual modus operandi in such cases include receipt of unsolicited communication such as calls, SMSes, emails, etc. by customer urging him/her to share certain personal details, account / login details/ card information, PIN, OTP, etc. or install some unauthorized/ unverified application for KYC updation using a link provided in the communication," the RBI said.

Even informed clients are falling for these tricks. I know of a person working at a senior position in an engineering company who got a call for a KYC update and shared all personal details as demanded in the link given for a company website. Within minutes, a sizeable chunk of his savings was transferred from his account. The website was a fake one. He is still trying to recover the money.

They come in all shades


Online frauds are not limited to KYC. In another case, as this writer reported on Moneycontrol a group of investors was conned by a former bank manager on the promise of 2-5 percent monthly returns on their investments from the stock market. The group is struggling to get its money back.

According to these investors, a former bank manager with a leading private bank in Goa started an investment firm in 2014-15 and collected about Rs 54 crore from some 80 investors.

banking centralHe duped HNIs (high net worth individuals) by promising them high returns from derivative instruments like Index Stock Option Funds. Later, he diverted a significant chunk of the money for personal gains, using forged documents.

There are several such cases. We all know about a case where the representatives of a prominent private bank fooled the bank's fixed-deposit holders into investing crores of rupees in risky perpetual bonds, pitching them as “super FDs”. There was nothing “super” about the product neither were they FDs. The money is as good as lost unless the investors get a favourable verdict after an ongoing court battle.

These are major cases of misselling which are no different from fraud as far as investors are concerned. What about co-operative banks where managements lure depositors by offering higher rates of return knowing fully well that not all is well with the financials?

The Punjab and Maharashtra Co-op bank case is one example. The management knew what was happening but continued to solicit deposits from a large section of customers, including RBI employees.

For years, the bank painted a rosy picture even as the rot deepened. And when the cookie crumbled, high-value depositors found themselves at the receiving end.

Crooks are a step ahead 

I recall these instances to illustrate the point that bank frauds aren't of a single variety. In today's tech-savvy world, informed citizens, too, fall prey to crooks because of greed for quick returns, lack of attention to detail and lack of awareness about the new types of frauds.

Many banks, across the private and the public sector, saw a spike in fraud cases in 2019-20 and the quantum of money involved, indicating the challenges that the industry and the banking regulator face.

In recent years, the RBI has tightened regulation and supervision of banks to prevent frauds and financial irregularities, focusing more on field-level supervision and creating a separate unified cadre in the central bank.

In 2020, RBI governor Shaktikanta Das stressed the need for closer monitoring of financial transactions to prevent frauds and other irregularities. Das said the central bank was focusing on a “sharper and more forward-looking” off-site surveillance framework and would use technology tools to ramp up the supervisory framework.

The RBI's efforts to sensitise the general public through its social media channels and inspections deserve appreciation. A much stronger awareness campaign from banks and other financial institutions, however, is needed for last-mile coverage.

Unless banks pay attention to fraudsters and keep up with their latest tricks, such instances will continue to destroy the trust of citizens in financial products and services, which banks, as well as customers, can ill-afford.

(Banking Central is a weekly column that keeps a close watch and connects the dots about the sector's most important events for readers.)
Dinesh Unnikrishnan is Deputy Editor at Moneycontrol. Dinesh heads the Banking and Finance Bureau at Moneycontrol. He also writes a weekly column, Banking Central, every Monday.
first published: Sep 27, 2021 10:54 am
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