Losses likely to mount in Bengal bank fraud
Modus operandi is so unusual that both the banks and affected govt undertakings claim to be victims of the fraud ( Live Mint )
Romita Datta
At least two West Bengal government-owned corporations have been defrauded of Rs.123 crore through a unique forgery of term deposit receipts involving several private and public sector banks. The episode appears to uncover further weaknesses in the Indian banking industry in the wake of the Cobrapost.com exposé that alleged widespread money-laundering by lenders.
Unearthed last week, the fast-unfolding scam has until now claimed two victims and has triggered several investigations—at the banks that are involved and across all state-run undertakings and departments that have surplus cash parked in fixed deposits.
Initial findings of the probe by the West Bengal government suggest that the loss is likely going to mount, according to two key officers who did not want to be named.
Even the Central Bureau of Investigation (CBI), which unearthed the fraud last week, is conducting an independent probe.
The modus operandi is so unusual that both the banks and the affected government undertakings are claiming to be victims of the fraud.
But the money that has been siphoned off can’t be traced although the accounts through which the money disappeared are being said to be fully compliant with Reserve Bank of India’s know-your-customer, or KYC, norms.
West Bengal Infrastructure Development Finance Corp. (WBIDFC) had between August last year and early January transferred Rs.120 crore in two tranches to Kolkata-based UCO Bank to start term deposits.
It transferred Rs.59 crore on 30 August and Rs.61 crore on 10 January through real time gross settlement, or RTGS, to a current account at UCO Bank’s Circus Avenue branch in Kolkata.
The account, however, belonged to one SA Enterprises, a proprietorship firm owned by Pradeep Chongdar, opened with an initial deposit of Rs.5,000 on 23 May 2012.
The intended term deposit was never started. But WBIDFC eventually produced two certificates of term deposits of Rs.59 crore and Rs.61 crore, which UCO Bank has dismissed as fakes.
The one dated 30 August of Rs.59 crore even has corrections in handwriting that were not signed as a mark of authorization.
From the money it received from WBIDFC’s accounts, SA Enterprises had transferred Rs.82.69 crore to various firms until the fraud was detected on the evening of 12 March.
CBI officers told WBIDFC that day that the term deposit receipts in its possession could be fakes, following which it asked UCO Bank to immediately scrutinize them.
The investigating agency launched a probe after Bank of India—one of the banks with which WBIDFC held an account and from which money was transferred to SA Enterprises’s account in UCO Bank—had raised an alarm suspecting foul play.
From SA Enterprises’s account in UCO Bank, money was remitted through RTGS to accounts in Bank of India, Allahabad Bank, IndusInd Bank Ltd, ICICI Bank Ltd, Development Credit Bank Ltd (DCB), HDFC Bank Ltd and Punjab National Bank (PNB), UCO Bank said in its complaint filed with CBI on 14 March.
On 13 March—the day WBIDFC’s term deposit receipts were declared fake, the West Bengal State Co-operative Bank Ltd found out that it too was the victim of an identical fraud, which had resulted in a loss of Rs.40 crore.
The state co-operative bank had in January deposited Rs.20 crore each in UCO Bank and Indian Overseas Bank (IOB) to start term deposits, but it was found that the money had gone into unintended bank accounts and the term deposit receipts it had received were fakes. According to UCO Bank officials, the entire amount received from the state co-operative bank was remitted out in three days from 16 January.
The state co-operative bank immediately launched a probe into its treasury holdings and a spokesperson said that he was concerned that more fixed deposit receipts could be found to be fakes. He declined further comments.
Both UCO Bank and IOB said deposits were never solicited from WBIDFC and the state co-operative bank, and that they were as much victims of the fraud as the two Kolkata-based enterprises that lost money.
Yet, both banks have taken disciplinary action against their staff.
UCO Bank has suspended 12 people—the entire staff of its Circus Avenue branch—and five more at its Hastings branch, while IOB has suspended the manager of its branch in Kolkata where the fraud involving the state co-operative bank took place.
Claiming that it had been defrauded by UCO Bank officials, WBIDFC has produced two quotations received by it from two branches of the bank. They, too, were dismissed by UCO Bank as fakes.
It said it did not normally take bulk deposits for terms as long as three years, and that its branches could not have quoted different interest rates—and that, too, varying by 100 basis points. One basis point is one-hundredth of a percentage point.
After making a formal announcement that it had been defrauded of at least Rs.82.69 crore, WBIDFC has stopped making any comments to the media.
WBIDFC chairman Abhirup Sarkar, who is also a professor of economics at Kolkata’s Indian Statistical Institute, said he had been advised by the police not to discuss the matter with the media in the interest of the ongoing investigation.
A key officer of the West Bengal government, who is on the board of several state-run corporations, said it appears that the fraud was planned by intermediaries who hawk investment ideas and perpetrated in connivance with bank officials and middle-level officers at WBIDFC and the state co-operative bank. This person did not want to be named.
For long, the state government was suspicious about these brokers and on 21 January, H.K. Dwivedi, the principal secretary in the finance department, had issued a memorandum saying that corporations should not be dealing with such intermediaries and that “designated officers should personally visit the bank” to start term deposits.
“If only these guidelines on investing surplus cash was followed, this fraud could not have happened,” said the unnamed officer cited above. “But these aren’t new guidelines—Dwivedi only reiterated them after it was brought to his notice that they were not being followed.”
Not only have the two banks into which the defalcated money was deposited—UCO Bank and IOB—started inquiries, even the ones into which money was transferred appear to be ruffled by the turn of events.
And the key issue is compliance with RBI’s KYC norms because the money trail hasn’t yet led to any identifiable beneficiary.
“We got in touch with UCO Bank after we came to know that money had come into our bank,” said Shubhalakshmi Panse, chairperson of Allahabad Bank. “We have gathered necessary data and are conducting an investigation.”
A spokesperson for UCO Bank said though the necessary documents were taken from SA Enterprises and its owner Chongdar, most of them were fakes—even the address (21/4 B.T. Road, Kolkata 700056) does not exist. “But do we have the bandwidth to check the authenticity of documents produced by customers?” asked a spokesperson for UCO Bank.
Bank of India denied having received any money from SA Enterprises’s account, but a key official said an investigation into the matter had already been started.
Among the private banks named in UCO Bank’s complaint to CBI, DCB’s managing director and chief executive officer Murali Natarajan said money had come into two accounts, but he was confident about his bank’s KYC compliance and transaction monitoring. But HDFC Bank said nothing had yet been found that linked it to the scam, while Romesh Sobti, managing director and chief executive officer of IndusInd Bank, said nobody had yet contacted his bank in connection with the fraud.
UCO Bank begins internal probe, conducts snap audit across Kolkata branches
Team of 36 officers makes surprise visits across 71 branches
State-run UCO Bank has started an internal probe to examine the functioning of its branches after West Bengal Infrastructure Development Finance Corporation and West Bengal State Co-operative Bank claimed that money was missing from their fixed deposit accounts with the bank.
A team led by Rajiv Yadav, general manager for inspection and audit at UCO Bank, has made surprise visits to 71 branches in Kolkata and its outskirts. The public sector bank currently has 75 branches in Kolkata.
"Snap audit was conducted across these branches by a team of 36 officers during the weekend. The officers have been selected from the across the country. The audit was conducted to examine if there is any weakness in the systems and processes of these branches. The findings are currently being examined by Rajiv Yadav and his team," a senior executive of the bank told Business Standard requesting anonymity.
He added that the Central Bureau of Investigation (CBI) has also sent a team from Delhi to investigate the matter. UCO Bank had referred the cases to CBI.
WBIDFC has alleged that it transferred Rs 120 crore in two separate transactions and opened fixed deposit accounts with UCO Bank's Circus Avenue, Kolkata branch. It claimed that the Circus Avenue branch had offered a higher rate of interest than other branches of UCO Bank.
While reconciliation of its accounts earlier this month, WBIDFC noticed that the money was missing from the fixed deposit accounts. The state government's infrastructure finance arm said the money was transferred to a proprietorship firm and filed a first information report (FIR) with the local police.
UCO Bank said the fixed deposit certificates of WBIDFC are fictitious and at no point of time these instruments were issued by the bank's Circus Avenue branch. The bank, however, suspended all the 12 employees of its Circus Avenue branch, pending enquiry.
West Bengal State Co-operative Bank has also made similar allegations. It claims Rs 20 crore is missing from its fixed deposit account with UCO Bank's Hastings, Kolkata branch. The bank has suspended five employees in this branch, pending investigation.
The bank, however, did not conduct the snap audits in Circus Avenue and Hastings branches. "CBI is already investigating those branches. Hence, those were excluded from the snap audit," the official said.
A team led by Rajiv Yadav, general manager for inspection and audit at UCO Bank, has made surprise visits to 71 branches in Kolkata and its outskirts. The public sector bank currently has 75 branches in Kolkata.
"Snap audit was conducted across these branches by a team of 36 officers during the weekend. The officers have been selected from the across the country. The audit was conducted to examine if there is any weakness in the systems and processes of these branches. The findings are currently being examined by Rajiv Yadav and his team," a senior executive of the bank told Business Standard requesting anonymity.
He added that the Central Bureau of Investigation (CBI) has also sent a team from Delhi to investigate the matter. UCO Bank had referred the cases to CBI.
WBIDFC has alleged that it transferred Rs 120 crore in two separate transactions and opened fixed deposit accounts with UCO Bank's Circus Avenue, Kolkata branch. It claimed that the Circus Avenue branch had offered a higher rate of interest than other branches of UCO Bank.
While reconciliation of its accounts earlier this month, WBIDFC noticed that the money was missing from the fixed deposit accounts. The state government's infrastructure finance arm said the money was transferred to a proprietorship firm and filed a first information report (FIR) with the local police.
UCO Bank said the fixed deposit certificates of WBIDFC are fictitious and at no point of time these instruments were issued by the bank's Circus Avenue branch. The bank, however, suspended all the 12 employees of its Circus Avenue branch, pending enquiry.
West Bengal State Co-operative Bank has also made similar allegations. It claims Rs 20 crore is missing from its fixed deposit account with UCO Bank's Hastings, Kolkata branch. The bank has suspended five employees in this branch, pending investigation.
The bank, however, did not conduct the snap audits in Circus Avenue and Hastings branches. "CBI is already investigating those branches. Hence, those were excluded from the snap audit," the official said.
http://www.business-standard.com/article/finance/uco-bank-begins-internal-probe-conducts-snap-audit-across-kolkata-branches-113032200362_1.html
SATURDAY, JANUARY 5, 2013
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