RBI Says Had Warned Banks Thrice Of Nirav Modi-Type Scam Since 2016: Full Statement

New Delhi: Criticised by the centre for "supervisory failure", the Reserve Bank of India on Monday said it had alerted banks thrice on potential abuse of an inter-bank messaging system called SWIFT since August 2016, much before the Rs 11,400 crore fraud at the Punjab National Bank involving celebrity jeweller Nirav Modi was reported. In its first official statement in the mega PNB scam, the central bank said it was setting up a panel under board member YH Malegam, considered one of the country's best known chartered accountants, to look into the factors leading to increasing incidents of frauds in banks.

Read the full statement of the RBI here:

Reserve Bank of India (RBI), as part of its ongoing efforts for strengthening of the supervisory framework in the country, has been issuing necessary instructions to banks from time to time on a variety of issues of prudential supervisory concern, including the management of operational risks inherent in the functioning of banks. The risks arising from the potential malicious use of the SWIFT infrastructure, created by banks for their genuine business needs, has always been a component of their operational risk profile. RBI had, therefore, confidentially cautioned and alerted banks of such possible misuse, at least on three occasions since August 2016, advising them to implement the safeguards detailed in the RBI's communications, for pre-empting such occurrences. Banks have, however, been at varying levels in implementation of such measures.

2. In the wake of SWIFT-related fraud involving significant amount, reported recently by Punjab National Bank, RBI has today reiterated its confidential instructions and mandated the banks to implement, within the stipulated deadlines, the prescribed measures for strengthening the SWIFT operating environment in banks.

3. Further, in view of large divergences observed in asset classification and provisioning in the credit portfolio of banks as well as the rising incidence of frauds in the Indian banking system, it has been decided to constitute an Expert Committee under the chairmanship of Shri Y H Malegam, a former member of the Central Board of Directors of RBI, to look into the reasons for high divergence observed in asset classification and provisioning by banks vis-a-vis the RBI's supervisory assessment, and the steps needed to prevent it; factors leading to an increasing incidence of frauds in banks and the measures (including IT interventions) needed to curb and prevent it; and the role and effectiveness of various types of audits conducted in banks in mitigating the incidence of such divergence and frauds.

4. The members of the committee will be: Shri Bharat Doshi, Member, Central Board of Directors, RBI; Shri S Raman, former Chairman and Managing Director, Canara Bank and former Whole-Time Member, SEBI; and Shri Nandkumar Saravade, Chief Executive Officer, Reserve Bank Information Technology Pvt Ltd (ReBIT). Shri A K Misra, Executive Director, RBI will be the Member-Secretary of the committee.