Citibank just sent some lenders $900 million by mistake. What happens if you commit such a colossal gaffe?

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If you are having a bad day, spare a thought for Citibank. The global banking giant, acting as a loan agent to cosmetic company Revlon, accidentally transferred $900 million (about Rs 6,554 crore) to the company’s lenders.

Citi was serving as the so-called administrative agent between Revlon, the embattled cosmetics company, and its creditors. It mistakenly paid those lenders much more — $8 million was the correct amount— than it intended to.

A worried Citibank then moved the court demanding a full refund but it still has not received $500 million from the accidental transfer. A US District Court judge ruled that Citi can’t recover that amount. This is a unique case involving a corporate client.

The whole episode brings to the fore a few important questions. What if it happened to you and me? It could, right?

Here’s what we gathered by talking to bankers and the regulator:

1. Can such a huge amount of money reach the wrong beneficiary? 

It shouldn’t happen in a normal scenario. Banks have stringent procedures to make sure that a fund transfer is approved by the sender and the recipient details are submitted promptly.

These include the account numbers, IFSC Codes. Finally, the amount to be wired is cross-checked before initiating the transaction. The sender is issued an acknowledgment receipt once the transfer is done. Despite all this, there are rare cases where accidental money transfers happen either due to a bank’s error (such as what happened with Citibank) or on the part of customer.

2. What if the bank makes the wrong transfer?

According to bankers, the bank immediately begins their SOP (standard operating procedure) in such cases. It notifies the wrong recipient about the accidental transfer and requests to reverse the transaction at the earliest. If the recipient refuses to do so, the bank can and, normally, will seek legal opinion on the future course of actions. This could involve filing a petition with the Police or Courts.

“Wrong transfers shouldn’t happen in the first place. There are stringent checks and balances at all levels. If this happens, we would approach the legal team for necessary recovery of the funds,” said a senior official with a leading private bank in Mumbai. He didn’t want to be named.

There are cases where the customer enters the wrong account details of the beneficiary. In this case, the onus is completely on the customer as the bank has only followed the instructions of its account holder. The customer will have to approach the wrong beneficiary to request for immediate reversal of the transaction and will have to seek legal opinion in the event of non-cooperation.

To avoid such incidents, a customer needs to thoroughly check the account details of the beneficiary and the destination bank before sanctioning the transfer, bankers said.

According to Bandhan Bank, in terms of the extant procedural guidelines for RTGS / NEFT/ IMPS/ UPI, the credit to customers’ accounts is processed on the basis of account numbers only through straight-through-processing (STP).

"It is the customer’s responsibility to provide the correct beneficiary details," Bandhan Bank said in an email response.

 You make a wrong money transfer. Now what?

"If incorrect beneficiary details are provided by the remitting customer and remittance is sent to the wrong beneficiary, then on receipt of remitting customer’s request, the remitting bank may raise a request, citing the reason, with the destination bank (as a measure of customer service and on good faith basis) to remit back the funds," Bandhan Bank said.

If funds are still available in the account of the beneficiary, the destination bank may remit back the funds to the remitting bank. "However, if there are no apparent discrepancies in the remittance (account number and name mismatch) then the destination bank generally does not reverse the remittance. If they do so, in such cases, it is only with the consent of the beneficiary," the bank said.

There are no specific Reserve Bank of India rules on wrong account transfers. However, a customer can approach his/her bank immediately after the wrong transfer happens and if the bank still doesn’t address the problem, the customer can approach the Banking Ombudsman for redressal under the RBI’s mechanism.

5. And, what if you receive a wrong credit?

If you receive a wrong credit, logically you have no claims on this amount and you are supposed to return the amount as soon as the error comes to notice. In Citibank’s case, Revlon actually owed money to the recipients who received the wrong transfer. Any accidental receipt of money should be immediately reversed as the recipient has no claim on the amount.

There are rare cases when banks have made transfer to some customers. For instance, in 2012-13, one leading PSU bank distributed interest payments to several accounts erroneously. But the transactions were reversed soon after the mistake was identified. Luckily, the mistake happened late in the evening on that day and by morning the error was rectified and all wrong transactions were reversed, said a senior banker who was part of that bank at that time.  “The bank reversed all transactions. No loss happened,” he said.

(Updating the story including a response from Bandhan Bank)