Fraud is a significant threat facing entities everywhere. Globally, regulatory
bodies as well as associations are driving awareness among organizations through
multiple initiatives. The Association of Certified Fraud Examiners (ACFE) for
instance has championed the International Fraud Awareness Week (November 16 to
22, 2014) which is dedicated to fraud awareness, detection and prevention.
Today, assessing, improving, and monitoring fraud risks are key elements of an effective internal control structure. Frequent surveys, with varying findings, indicate
that fraud is prevalent and any organisation that fails to protect itself
appropriately faces not only tangible losses but also intangible losses such as
negative impact on brand, reputation and image of organisation leading to erosion of investors' confidence.
In the recent past in India, the fraud uncovered in the banking
sector has been worth crores and has brought the problem to the doorstep for most organizations. During the National Conference on Financial Fraud, Reserve
Bank of India highlighted that the amount involved in the frauds reported by the
banking sector in India has increased from Rs.2038 crore during 2009-10 to
Rs.8646 crore during 2012-13, an increase of 325%. It was also highlighted that
while 82.5% of fraud by number are reported by private sector banks and foreign
bank groups, 83% of total amount involved in fraud are reported by the public
sector banks.
What do these statistics reveal?
To put it simply,
fraud risk can no longer be ignored. Their impact is being felt across the
global financial system. Business is no longer the same. It is continually
evolving and so is the fraud risk associated with it.
Most banks in India continue to use piecemeal anti-fraud solutions that focus on specific
lines of business or channels. Typically, banks will have one AML or fraud
detection solution for core banking system, another for credit cards/ online transactions and yet another for loan and advances. The biggest challenge with this set-up is that these systems work in silos and are not easily integrated. This results in high cost for the banks,
not just due to disparate IT infrastructure and license fees, but also in
potential losses, as a 360 degree fraud risk view of customers is not available.
How can banks or financial institutes make fraud framework more
robust?
Banks to get commission from govt for DBT
Over 100 million accounts have been opened under the Jan-Dhan Yojana scheme
The Union finance ministry has agreed to banks’ long-standing demand for commission for Direct Benefits Transfer (DBT) transactions. The move will boost lenders’ fee income and make account opening, under the Pradhan Mantri Jan-Dhan Yojana (PMJDY) viable.
Earlier, a task force headed by Nandan Nilekani, former chairman of the Unique Identification Authority of India (UIDAI), recommended a commission of 3.14 per cent to be paid for all DBTs handled by banks and business correspondents. However, provision for such commission payment was not made in previous Budgets.
Now, the government is expected to make budgetary provisions for these expenses, as the department of financial services has already given a note to the expenditure department in the finance ministry.
Bankers claim that lenders have to incur several expenses while opening bank accounts. These costs include account opening expenses, hardware maintenance cost, advertisement expenses, debit card expenses, remuneration to business correspondents, etc.
“The account opening cost is Rs 140 per account. Also, we have to pay Rs 780 crore to the 120,000 business correspondents annually. In addition, there are other costs,” a top banker from a public sector bank said. He, however, added that with more transactions, the overall costs will come down, as some of the expenses (like account opening cost) are one time in nature.
The move will also lift banks’ fee income, which has been muted for past few quarters, following slowdown in corporate and investment banking activities in an uncertain macro-economic environment. While retail fees have been growing on the back of rising card spends and distribution of third-party products, the slowdown in corporate fees have capped the growth in banks’ fee and commission income.
Industry analysts said that receiving commissions for DBTs will also incentivise lenders to open accounts under the PMJDY scheme. Banks, nudged by the government, have opened more than 100 million accounts under this scheme. The PMJDY scheme was launched in August, 2014 with a target of opening 75 million accounts by January 26, 2015. However, 75 per cent of 100 million accounts opened still have no money.
Banks have also been directed to provide overdraft facility of Rs 5,000 if an account opened under the PMJDY scheme performs satisfactorily for six months. Bankers have requested the government to cover the overdraft facility under the credit guarantee scheme.
“It could happen that these loans could turn non-performing. So, we have asked that the loans should be covered under the credit guarantee fund trust,” said a senior executive from another public sector bank.
Earlier, a task force headed by Nandan Nilekani, former chairman of the Unique Identification Authority of India (UIDAI), recommended a commission of 3.14 per cent to be paid for all DBTs handled by banks and business correspondents. However, provision for such commission payment was not made in previous Budgets.
Now, the government is expected to make budgetary provisions for these expenses, as the department of financial services has already given a note to the expenditure department in the finance ministry.
Bankers claim that lenders have to incur several expenses while opening bank accounts. These costs include account opening expenses, hardware maintenance cost, advertisement expenses, debit card expenses, remuneration to business correspondents, etc.
“The account opening cost is Rs 140 per account. Also, we have to pay Rs 780 crore to the 120,000 business correspondents annually. In addition, there are other costs,” a top banker from a public sector bank said. He, however, added that with more transactions, the overall costs will come down, as some of the expenses (like account opening cost) are one time in nature.
The move will also lift banks’ fee income, which has been muted for past few quarters, following slowdown in corporate and investment banking activities in an uncertain macro-economic environment. While retail fees have been growing on the back of rising card spends and distribution of third-party products, the slowdown in corporate fees have capped the growth in banks’ fee and commission income.
Industry analysts said that receiving commissions for DBTs will also incentivise lenders to open accounts under the PMJDY scheme. Banks, nudged by the government, have opened more than 100 million accounts under this scheme. The PMJDY scheme was launched in August, 2014 with a target of opening 75 million accounts by January 26, 2015. However, 75 per cent of 100 million accounts opened still have no money.
Banks have also been directed to provide overdraft facility of Rs 5,000 if an account opened under the PMJDY scheme performs satisfactorily for six months. Bankers have requested the government to cover the overdraft facility under the credit guarantee scheme.
“It could happen that these loans could turn non-performing. So, we have asked that the loans should be covered under the credit guarantee fund trust,” said a senior executive from another public sector bank.
RBI issues norms for bank leverage ratio under Basel III-HBL
The Reserve Bank of India on Thursday said its revised guidelines on the leverage ratio framework for banks will come into effect from April 1, 2015.
The leverage ratio under the Basel III regulatory framework for banks is defined as their capital measure divided by their exposure measure, with this ratio expressed as a percentage.
Capital measure for the leverage ratio is the Tier-1 capital and exposure measure is the sum of on-balance sheet exposures; derivative exposures; securities financing transaction exposures; and off- balance sheet items.
This ratio is calibrated to act as a credible supplementary measure to the risk based capital requirements and is intended to achieve two objectives.
The first objective is to constrain the build-up of leverage in the banking sector to avoid destabilising deleveraging processes which can damage the broader financial system and the economy. The second objective is to reinforce the risk-based requirements with a simple, non-risk based “backstop” measure.
Currently, the banking system is operating at a leverage ratio of more than 4.5 per cent. The final minimum leverage ratio will be stipulated taking into consideration the final rules prescribed by the Basel Committee by end-2017, the RBI said.
In the run-up to December-end 2017, Reserve Bank will monitor individual banks against an indicative leverage ratio of 4.5 per cent.
Banks operating in India are required to make disclosure of the leverage ratio and its components from April 1, 2015 on a quarterly basis.
The Basel III international regulatory framework for banks is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector.
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