Banks failed to take safeguards against potential frauds despite warnings: RBI

In the wake of Rs 11,300-crore PNB fraud, the Reserve Bank of India (RBI) said it had warned banks thrice since August 2016 of possible misuse of the SWIFT Infrastructure. 
 
Finally breaking its silence on its supervisory role in the over banks, the regulator said despite its warnings, banks failed to take adequate safeguards against the potential frauds. 
 
Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a messaging platform used to send secure instructions on transfer of funds, guarantees and payments.
 
After the government asked RBI to explain why such financial fraud happened under its nose, the regulator said it has appointed chartered accountant Y H Malegam (80), who was part of the RBI’s board for 17 years, to head a panel that will look into the causes of fraud at lenders and the reason for their failure in identifying defaulters. 
 
RBI also pointed out that there were major differences in the default accounts identified by it and those classified by the banks.
The risks arising from the misuse of the SWIFT infrastructure, created by banks for their genuine business needs, has always been a component of their operational risk profile, the RBI said in a statement. 
 
RBI deputy governor S S Mundra had warned banks on frauds in SWIFT usage in 2016 after a cyber heist took place in the Bangladesh Central Bank and a cyberattack attempt on the SWIFT systems of Union Bank of India. 
 
Mundra had warned that the regulator has come across instances of fraudulent messages confirming documentary credits being transmitted using SWIFT infrastructure.