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Showing posts with label FINANCE & BANKING. Show all posts
Showing posts with label FINANCE & BANKING. Show all posts

Monday, 22 November 2021

Amid Cryptocurrency Boom – and No Regulation – What’s the Way Forward for India's Policymakers?


There are two tracks of concern – one around financial stability and how consumer and investor protection can be ensured. The other is around money laundering and terrorism finance.

Bitcoin is making fresh headlines in India, but again for all the wrong reasons.

This time the cops themselves are connected with it. It appears that in January this year Karnataka police seized 31 stolen Bitcoins, worth Rs 9 crore from Srikrishna alias Sriki, arrested in November 2020 for hacking crypto exchanges. Sriki then appears to have tricked the police into believing he had transferred the Bitcoins to a police wallet for seizure. Now, those bitcoins seem to have vanished.

And, to make matters worse, in their charge-sheet related to the illegal hacking activities the Bengaluru police had not mentioned the Bitcoin seizure. The fiasco has taken a political turn with the Congress party alleging that the BJP government in Karnataka is trying to cover up, what it calls a “multi-crore Bitcoin scam”, demanding a Supreme Court-monitored Special Investigation Team (SIT)-led probe with experts from multiple agencies.

For the aspiring young investors, cryptocurrency portends an exciting and lucrative new financial frontier. India is ranked at number 2 in a poll of nations that use cryptocurrency the most, contributing to billions of dollars of trading volume. Global exchanges Binance and Huobi Global are likely to offer virtual assets (VAs) trades in rupee as well. 

For the June-July 2021 period, trading volume at three major Indian VA exchanges – WazirX, CoinDCX and ZebPay – stood at $3.1 billion (approximately Rs 23,000 crore). Web traffic feeds from SimilarWeb, Alexa and Ahrefs, reveal total unique visitors on these exchanges at over 24 lakh in the last few days. This increasing trade and participation in VAs in India is encouraging unregulated innovation and has increased difficulties for LEAs to track transactions. Since the Supreme Court struck down the Reserve Bank of India’s (RBI) ban on crypto transactions on March 4, 2020, the latter, while withdrawing its 2018 circular, advised customer due diligence for transactions in Virtual Currencies (VCs). 

Also read: India Shouldn’t Throw Out the NFT Baby With the Crypto Bathwater

‘Potential risks’

Virtual, convertible, decentralised, cryptocurrency remains a grey zone, mystic in nature and myriad in its many dimensions as currency or an asset, the ignominy of its use in the dark web for illegal activities, the anonymity and volatility associated with it. Several CEOs, banking leaders have voiced concerns over cryptocurrencies. RBI governor Shaktikanta Das has reiterated them at intervals, saying there are “far deeper issues” involved in virtual currencies that could pose a threat to the country’s economic and financial stability. Within a few days of the prime minister holding a meeting on the cryptocurrencies, the first-ever parliamentary panel discussed the broad contours of crypto finance, on November 16, and the consensus was that it must be regulated. 

The proliferation of cryptocurrency platforms vis-à-vis the potential risks to the economy is where credible answers are lacking. The Financial Action Task Force (FATF) has issued guidelines and recommendations against money laundering, CTF, and other illegal activities (gambling, narcotics, and more). 

With exchanges relentlessly advertising cryptocurrency the uninitiated investor is at a considerable risk. WazirX recently launched an NFT (non-fungible tokens) platform. Exchanges are also planning to launch decentralised exchanges (DEX), where blockchains are more vulnerable to security breaches. Privacy coins like Zcash have been introduced on DEXs, which operate on the principle of “shielded” transactions and provide enhanced privacy to the traders compared to VAs like Bitcoin, thereby posing further challenges in their usage detection.

Some crypto exchanges vouch for self-regulation via Blockchain and Crypto assets Council (BACC), insisting that they flag suspicious accounts based on known bad addresses, unusual volumes, and other erratic activities. But the reality is that blockchains are not easy to decrypt and most LEAs are struggling to understand how criminals are able to commit crypto fraud. The Bangalore crypto scam revealed that even stringent operating protocols like KYC standards are not enough to prevent cryptocurrency-based frauds. Criminals continue to leverage the technology to bypass conventional systems.

An entire ecosystem, replete with exchanges, wallets, miners, and stablecoin issuers is flourishing around cryptocurrency. But the bulk of these entities lack operational, governance, and risk practices. Market turbulence leads to significant disruptions for crypto exchanges, operating in India as MCA (ministry of corporate affairs) registered companies WazirX, CoinDCX and ZebPay are fully owned subsidiaries of foreign firms. In April 2008, the RBI had mandated all fintech entities to store financial data of Indians within India, but in the absence of regulation and charter of operations for VA exchanges there is no compliance.

Lack of a regulatory framework

The existing legal framework is not equipped to deal with the many contentious policy issues surrounding crypto and its sub-groups, be it transaction mechanisms like Bitcoin, tokens like Ethereum or NFTs.

 The prime public policy concern revolves around financial stability and how consumer and investor protection can be ensured. The other concerns regarding illegal activity such as money laundering and terrorism finance remain. Also, there’s no control over the private crypto-exchanges enabling sale purchase of cryptocurrencies. And Blockchain, upon which crypto technology hinges, firstly isn’t immune to theft and then comes with the risk of no support or guarantee in case of any loss or hacking of the system.

Blockchain site Poly Network revealed that hackers had exploited a vulnerability in its system. There are other possibilities, for instance, can consumer and investor protection be ensured if crypto assets are taxed? The government is believed to be analysing all these aspects in order to ensure the security of the financial system and prevent misuse of technology driven financial instruments.

In “the largest single recovery of a cryptocurrency fraud by the US to date” the BitConnect Ponzi scheme scam, swindled thousands of people out of more than $2 billion worth of bitcoin. 

The risks to the safety of the financial systems vis-à-vis the potential of crypto assets is the paradox which is bothering several governments and major economic leaders. It is also a deeply polarising area of investment. For chair of the US Securities and Exchange Commission, Gary Gensler, they seem “like the Wild West”. Apple CEO Tim Cook rejected the possibility of Apple buying cryptocurrency, “I wouldn’t go invest in crypto, not because I wouldn’t invest my own money, but because I don’t think people buy Apple stock to get exposure to crypto.”

The Union government has indicated that Bitcoin and Crypto will not be accepted as a legal tender yet. This wariness is understandable. There is scarce understanding of the relation between Bitcoin price and global developments. The anonymity of crypto assets also creates data gaps that are being manipulated for money laundering and terrorist financing. Even if exchanges cooperate with law enforcement, the authorities are not able to break down the data, and may not be able to exactly identify the parties to suspicious transactions. 

The case of the vanishing Bitcoins in Bengaluru has highlighted the lack of protocols and expertise within the police in handling new age crimes involving crypto currencies and the dark net. This episode may not significantly impact financial stability, but as trading volume goes  up along with increasing number of unique visitors, the importance of crypto assets in terms of potential implications for the wider economy are bound to increase.

With ambitions of making this ‘India’s Techade’ as a leader in the field of electronics and information technology, the government has a difficult policy formulation on hand, that has to strike the right balance between reaping the benefits of a massive crypto-market and protecting the interest of the investors. 

Vaishali Basu Sharma is an analyst on strategic and economic affairs. She has worked as a consultant with the National Security Council Secretariat (NSCS) for nearly a decade. 


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Monday, 8 November 2021

इंडसइंड बैंक ने मई में 84,000 ग्राहकों को सहमति के बिना ऋण देने की बात स्वीकार की


एक रिपोर्ट में बताया गया था कि अज्ञात ह्विसिलब्लोअरों ने भारतीय रिज़र्व बैंक और इंडसइंड बैंक प्रबंधन को इसकी सहायक इकाई बीएफआईएल द्वारा दिए गए इस तरह के ऋण के बारे में एक पत्र लिखा है, जिसमें कुछ शर्तों के साथ ऋण के नवीनीकरण का आरोप लगाया गया है. इस तरह जहां मौजूदा ग्राहक अपना क़र्ज़ नहीं चुका पा रहे थे, वहां उन्हें नया ऋण दिया गया.

(फोटो साभार: फेसबुक)

मुंबई: इंडसइंड बैंक ने ‘लोन एवरग्रीनिंग’ पर ह्विसिलब्लोअर के दावों को पूरी तरह से ‘गलत और निराधार’ बताते हुए हुए बीते शनिवार (छह नवंबर) को स्वीकार किया कि उसने मई में तकनीकी गड़बड़ी के कारण 84,000 हजार ग्राहकों को बिना उनकी सहमति के ऋण दे दिया था.

‘लोन एवरग्रीनिंग’ का अर्थ डिफॉल्ट की कगार पर पहुंच चुके ऋण का नवीनीकरण करने के लिए उस फर्म को ताजा ऋण देना है.

निजी क्षेत्र के बैंक ने सफाई देते हुए कहा कि फील्ड कमचारियों ने दो दिन के भीतर ही बिना सहमति के ग्राहकों को ऋण देने की सूचना दी थी, जिसके बाद इस गड़बड़ी को तेजी से ठीक कर लिया गया.

बीते पांच नवंबर को प्रकाशित एक मीडिया रिपोर्ट के अनुसार, अज्ञात ह्विसिलब्लोअरों ने बैंक प्रबंधन और भारतीय रिजर्व बैंक (आरबीआई) को इंडसइंड बैंक की सहायक इकाई बीएफआईएल (Bharat Financial Inclusion Ltd) द्वारा दिए गए इस तरह के ऋण के बारे में एक पत्र लिखा है, जिसमें कुछ शर्तों के साथ ऋण के नवीनीकरण (लोन एवरग्रीनिंग) का आरोप लगाया गया है. इस तरह जहां मौजूदा ग्राहक अपना कर्ज नहीं चुका पा रहे थे, वहां उन्हें नया ऋण दिया गया, ताकि बही-खातों को साफ रखा जा सके.

भारत फाइनेंशियल इंक्लूज़न को पहले एसकेएस माइक्रोफाइनेंस के नाम से जाना जाता था. इंडसइंड बैंक ने 2019 में भारत फाइनेंशियल इंक्लूज़न का अधिग्रहण किया था.

प्रकाशित रिपोर्ट के अनुसार, छोटे कर्ज देने वाली फर्म भारत फाइनेंशियल इंक्लूज़न के वरिष्ठ अधिकारियों (ह्विसिलब्लोअर) के एक समूह ने भारतीय रिजर्व बैंक और उसके बोर्ड को कोविड-19 महामारी के प्रकोप के बाद से ‘लोन एवरग्रीनिंग’ के लिए लेखांकन मानदंडों के कुशासन और चूक के प्रति सचेत किया है.

इकोनॉमिक टाइम्स ने बीते पांच नवंबर को प्रकाशित अपनी एक रिपोर्ट में बताया था कि ह्विसिलब्लोअर के रूप में कार्य करते हुए अधिकारियों ने चेतावनी दी थी कि अगर पहले के ऋणों से अतिदेय के साथ नए ऋण के पैसे को समायोजित करने के चलन को तुरंत नहीं रोका गया तो सहायक इकाई (बीएफआईएल) में गलती पैरेंट बैंक (इंडसइंड बैंक) के वित्त को खत्म कर देगी.

बैंक ने इन आरोपों पर कहा, ‘हम लोन एवरग्रीनिंग के आरोपों का पूरी तरह से खंडन करते है. बीएफआईएल द्वारा जारी और प्रबंधित ऋण नियामक द्वारा जारी दिशानिर्देशों का पूरी तरह से पालन करने के बाद ही दिए गए. इसमें कोविड-19 की पहली और दूसरी लहर के प्रकोप के दौरान दिए गए ऋण भी शामिल है.’

बैंक ने कहा कि मई 2021 में तकनीकी गड़बड़ी के कारण करीब 84,000 ग्राहकों को बिना अनुमति के ऋण दिए गए थे.

बीते पांच नवंबर को प्रकाशित रिपोर्ट के अनुसार, ह्विसिलब्लोअर ने बैंक के मुख्य कार्यकारी अधिकारी सुमंत कथपालिया, स्वतंत्र निदेशकों और आरबीआई के अधिकारियों से 17 अक्टूबर से 24 अक्टूबर के बीच इस संबंध में ईमेल भेजकर संपर्क साधा था. इसके अतिरिक्त एक बाहरी व्यक्ति (Outsider) भी था, जिसने 14 अक्टूबर को आरबीआई को लिखा था.

रिपोर्ट में इस बात पर प्रकाश डाला गया था कि 14 अक्टूबर की शिकायत से एक महीने पहले बीएफआईएल के गैर-कार्यकारी अध्यक्ष एमआर राव ने पद छोड़ दिया था और अपने त्याग-पत्र में ग्राहकों की सहमति के बिना दिए गए ऋणों पर आरबीआई की चिंताओं को भी चिह्नित किया था. अपने त्याग-पत्र में उन्होंने इसे पुनर्भुगतान दरों को कम करने के लिए जान-बूझकर किया गया एक कार्य बताया था.

मिंट की रिपोर्ट के अनुसार, सितंबर के अंत में इन 84,000 ग्राहकों में से 26,073 सक्रिय थे और इन पर 34 करोड़ रुपये का ऋण बकाया था, जो सितंबर अंत पोर्टफोलियो का 0.12 प्रतिशत है. इंडसइंड बैंक ने कहा, यह ऋण के खिलाफ आवश्यक प्रावधान करता है.

बैंक की ओर से ये भी कहा गया है कि बायोमेट्रिक अथोराइजेशन को अनिवार्य बनाने के लिए मानक संचालन प्रक्रिया को संशोधित किया गया है और अक्टूबर 2021 में लगभग 100 प्रतिशत ऋण ग्राहकों के बैंक खातों में था, जैसा कि कोविड-19 के पूर्व ​​समय में था.

बैंक के बयान में कहा गया है कि महामारी के दौरान ग्राहकों को परिचालन संबंधी कठिनाइयों का सामना करना पड़ा और इनमें कुछ ने रुक-रुक (अनिरंतर) भुगतान किया, हालांकि उनमें से एक बड़े हिस्से ने (ऋण) चुकाने के लिए एक मजबूत इरादे का प्रदर्शन किया.


 सोशल मीडिया बोल्ड है। सोशल मीडिया युवा है। सोशल मीडिया सवाल उठाता है। सोशल मीडिया एक जवाब से संतुष्ट नहीं है। सोशल मीडिया बड़ी तस्वीर देखता है। सोशल मीडिया हर विवरण में रुचि रखता है। सोशल मीडिया उत्सुक है। सोशल मीडिया फ्री है। सोशल मीडिया अपूरणीय है। लेकिन कभी अप्रासंगिक नहीं। सोशल मीडिया तुम हो। (समाचार एजेंसी की भाषा से इनपुट के साथ) अगर आपको यह कहानी अच्छी लगी हो तो इसे एक दोस्त के साथ शेयर करें! हम एक गैर-लाभकारी संगठन हैं। हमारी पत्रकारिता को सरकार और कॉर्पोरेट दबाव से मुक्त रखने के लिए आर्थिक रूप से हमारी मदद करें !


Tuesday, 2 November 2021

Income Tax attaches Properties worth Rs.1000 Crore belonging to Dy. CM

 Income Tax Department.jpg 

In a development that rattled Maharashtra’s ruling Maha Vikas Aghadi, the IT department has attached properties worth Rs 1,000 crore linked to Deputy Chief Minister & senior NCP leader Ajit Pawar.

Five properties, including Nirmal Tower at Nariman Point in Mumbai, has been attached by I-T Department.

Last month, the Income Tax Department had conducted raids at houses and companies linked to sisters of Pawar.

Reacting to the development, senior BJP leader Kirit Somaiya tweeted, “Understood Income Tax Authorities have attached Ajit Pawar's Son Parth Pawar's Nariman Point Nirmal Building Office & Properties of Ajit Pawar's Mother, Wife, Sisters, DAMAD’s……."

Source Link

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Social media is you.

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Saturday, 23 October 2021

Dogecoin starts a legal battle against Dogecoin Imitators


Dogecoin is that word with all crypto lovers who are not only familiar with but also invest in it. It has gained popularity after Elon Musk endorsed it multiple times on Twitter due to which he has earned the title of the ‘Dogefather’ in the crypto community.

This Dogecoin was once relegated to tech niches and now its rise in popularity has caught the attention of even those who have zero knowledge about the cryptocurrency world. And now, this famous Dogecoin is now involved in a trademark battle over its name.

It was first launched in the year 2013 based on the viral meme of a Shiba Inu dog whose name was Doge. The token is up by 8,414.30 percent over the past year.

The Dogecoin Foundation is a non-profit organization. It was established in Colorado, Denver by the original token’s creators i.e., Billy Markus and Jackson Palmer. The foundation has now applied to register the name as a trademark. Interestingly, its creators left the cryptocurrency space disillusioned but other members who actively participated in the token’s development are still a proud part of the foundation.

The claims of the foundation are not limited to the Dogecoin trademark but at least half a dozen of papers have been already filed with the US Patent and Trademark Office (USPTO) with applicants contending to own the Dogecoin brand.

The foundation had been defuncted for years but was re-established in the month of August. The main aim behind the re-establishment was to help the cryptocurrency with adequate advocacy and support. The board also included Jared Birchall and Ethereum co-founder Vitalik Buterin. Jared Birchall is Elon Musk’s close associate and also his representative.

“We are here to accelerate the development effort by supporting current Dogecoin Core and future Dogecoin Developers to work on a full-time basis through sponsorship, as well as providing a welcome landing for new contributors hoping to help with the project,” the foundation stated.

The Dogecoin Foundation undoubtedly did a tremendous job in safeguarding its intellectual property rights. They set an example for everyone out there to keep an eye on the infringers.

 Social media is bold.

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Social media is you.

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Tuesday, 12 October 2021

Top 5 Things to Watch in Markets in the Week Ahead


Top 5 Things to Watch in Markets in the Week Ahead

Top 5 Things to Watch in Markets in the Week Ahead © Reuters

By Noreen Burke -- Third quarter earnings season kicks off this week with JPMorgan Chase and other big banks reporting. Figures on U.S. inflation will be closely watched while the Federal Reserve is set to publish the minutes of its September policy meeting, during which officials said they would begin stimulus tapering by the end of this year. The International Monetary Fund and the World Bank are to start their annual meeting on Monday, but a controversy over IMF chief Kristalina Georgieva has already overshadowed proceedings. In the UK, data releases will focus attention on the health on the economy amid growing expectations for rate hikes as inflationary pressures mount. Here’s what you need to know to start your week.

  1. Bank earnings

Some of the world's biggest banks kick off U.S. earnings, with investors focused on global supply chain problems, labor shortages and the upcoming tapering of the Fed's $120 billion monthly stimulus.

JPMorgan Chase (NYSE:JPM) and BlackRock (NYSE:BLK) report on Wednesday followed by Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) later in the week.

Banks smashed profit estimates in the second quarter as the economy rebounded, with Wells Fargo, Bank of America, Citigroup (NYSE:C) and JPMorgan Chase posting a combined $33 billion in profits.

That momentum likely slowed in the third quarter; earnings for financials are forecast to grow by 17.4%, versus nearly 160% in Q2, according to I/B/E/S data from Refinitiv.

"I think it’s going to be a dicey earnings season," warned Liz Young, head of investment strategy at SoFi in New York. "If supply-chain issues are driving up costs, a company with strong pricing power can pass through those rising costs. But you can’t pass through a labor shortage if you can’t find workers to hire."

  1. U.S. data

The key U.S. economic report to watch this week is Wednesday’s data on consumer price inflation for September. While the rate of price increases has moderated inflation is still higher than it was pre-pandemic with the surge in demand after the economy reopened pushing up prices.

Economists expect the consumer price index to match August’s 0.3% monthly increase and the 5.3% annual gain.

Producer price inflation figures are due out on Thursday, followed by data on retail sales on Friday. Retail sales are expected to be pulled lower because of a plunge in vehicle sales amid supply chain bottlenecks, but excluding vehicles, retail sales are forecast to increase.

  1. Fed minutes

The Fed is to publish its September meeting minutes on Wednesday amid expectations that it will begin tapering asset purchases before the end of this year, an important first step towards eventual rate hikes.

Friday’s weaker-than-expected September jobs report did little to alter expectations the Fed could begin to scale back stimulus by the years end.

Though the economy added just 194,000 jobs in September upward revisions to prior months' data meant that all told the economy has now regained half of the jobs deficit it faced in December, compared with pre-pandemic employment levels.

Fed Chair Jerome Powell said last month that he'd only need to see a "decent" September U.S. jobs report to be ready to begin to taper in November.

  1. IMF, World Bank annual meetings

Annual meetings of the World Bank and the IMF get underway Monday, where officials will discuss the global economy, the ongoing COVID-19 pandemic and global taxation issues.

But the high-profile event has been overshadowed by a data-rigging scandal that threatens the career of IMF managing director Kristalina Georgieva.

It has been alleged that Georgieva pressured World Bank staff to change data to favor China in 2017, when she was the chief executive of the bank.

The allegations – strongly denied by Georgieva - will cast a cloud over the fund's initiatives to aid the world's post-pandemic recovery.

A decision on Georgieva's future at the IMF is not expected until Monday, at the earliest.

  1. UK data

With the UK economy showing signs of slowing amid rising prices, supply chain disruptions and staff shortages, upcoming economic data releases will grab the spotlight.

On Tuesday, the claimant count change for September is published, together with August unemployment and wage data. GDP data for August will be released on Wednesday, alongside industrial and manufacturing data.

Markets are betting the Bank of England might become the first major central bank to raise rates since the pandemic struck.

On Saturday BoE official Michael Saunders said in an interview in the Telegraph newspaper that households should get ready for "significantly earlier" interest rate hikes as inflation pressure mounts.

-Reuters contributed to this report 

Wednesday, 22 September 2021

Account Aggregator Framework: financial convenience or threat to sensitive data?

 Account Aggregator Framework: financial convenience or threat to sensitive data? 

The RBI’s new Account Aggregator framework is aimed at ensuring convenience to customers in availing loans and establishing a foolproof mechanism for the financial institutes to check the creditworthiness of the loanee. However, several concerns must be taken care of in order to protect the data privacy of users and prevent this framework from turning into yet another pyrrhic victory, writes KHUSHI JAIN.


EARLIER this month, the Reserve Bank of India (RBI) launched its new Account Aggregator (AA) framework, a project that had been in the pipeline since 2016.

As of September 2, 2021, eight major Indian banks had already joined the AA network to pool financial data about their customers to be shared with the Account Aggregators. These include the State Bank of India, ICICI Bank, HDFC Bank, Axis Bank, IndusInd Bank, IDFC First Bank, Federal Bank, and Kotak Mahindra Bank.

Stakeholders in the Network

Besides the customers, the network includes AAs, Financial Information Providers (FIPs), and Financial Information Users (FIUs).

The AA is a Non-Banking Financial Company (NBFC) approved by the RBI to render the service. Its primary responsibility is to collate financial data of its customers under a contract signed with customer consent, and to provide the financial information to the customer or any FIU.

This would allow for an easy flow of financial data of the customers between FIPs and FIUs – the providers and the users of this data, with AAs acting as intermediaries.

FIPs, as the name suggests, are data fiduciaries that store the data of the customers. These include NBFCs, banks, pension fund repositories, and so on. FIUs, which also include banks, and NBFCs, apart from fin tech companies, among others, use the data stored by FIPs in order to provide financial services such as loans to the customers.

This would mean that if one applies for a loan at a bank, with their consent, the bank can acquire and analyse their financial history stored by the FIPs via an AA to judge their creditworthiness.

Understanding the framework

Prima facie, the mechanism is based on a simple, consent-based collation and transfer of financial data of a customer to equip various FIUs to provide services to customers, with proper data at their disposal that will help them analyse a customer’s financial history and position.

Licensed AAs, working as technologic service providers, will act as middlemen by sharing the customers’ information with institutions, seeking to use the same to provide certain services to the customer. The data is encrypted to protect the privacy of customers and can only be decrypted by the recipient, which means that the AAs would be blind to such data.

This will not only ensure low transaction costs and speedy grants of loans, but will also equip various institutions to provide tailor-based services. Easy loans and low transaction costs will especially benefit Micro, Small and Medium Enterprises (MSMEs) that do not maintain sophisticated records of their financial performance and transactions. Financial history pooled by the FIPs will enable banks to grant them loans based on their creditworthiness.

The new framework will also help investment companies offer customized investment advice to the more affluent class of citizens by judging their previous records. Assuming you are one to invest big in risky investments like crypto assets, or hedge funds, to name a few, the investment company would then offer you tailored portfolios that match your investment attitude. This is not only convenient, but is also expected to enhance competitive services in the market with the institutions shaping their services according to your previous track record.

This system of account aggregation is intended to ensure the safety of sensitive financial information, which might otherwise be compromised in the physical submission of documents. This safety measure is achieved via end-to-end encryption of the information and the affixation of digital signatures to the same.

Considering the threat involved in physical submission of documents as well as the limitations on the physical mode of running the formalities due to COVID-19 restrictions, the Account Aggregator framework acts as a saviour for ordinary citizens who can now avail themselves of efficient loan facilities.

Concerns to be acknowledged

At the outset, the primary concern that arises with such a system is the imminent risk to data privacy. The gravity of such apprehensions is exacerbated when it concerns data that is sensitive in nature.

There is always a threat of hijackers obtaining the data illegally from the account aggregation site. This information could then be fraudulently used to compromise the financial position of the customer.

Storage of all financial records at a single focal point aggravates the risk even more, as it makes it a single point of vulnerability and is thus exposed to severe risk in case the data security wall gets breached. Such apprehensions might inhibit consumers from subscribing to the framework, as they await more clarity and development in the system.

Another issue that arises with such a system is the possibility of it becoming yet another case of the Aadhaar. The framework, as of today, operates on a consent-based system where the customers are not obligated to avail of this service and they have a right to decide what information can be shared to a particular FIU, if at all.

It is pertinent to note that the Aadhaar system was also a voluntary scheme wherein no citizen was obligated to be an Aadhaar card holder. Be that as it may, Aadhaar is now de facto required at every step for availing most public or private services, even when it concerns services as basic as applying for a ration card.

Even though the Aadhaar isn’t a mandatory requirement for getting a new SIM card, for instance, it is a common practice for telecom operators to refuse the issuance of the same without an Aadhaar Card. The same situation can be anticipated with respect to the AA system in the long run.

There is a real possibility of banks refusing to lend loans unless a customer consents to providing access to their financial information with the Account Aggregator; and in cases where the customer has not subscribed to account aggregation, they may be refused even basic banking facilities. Such misuse of dominant position by banks would defeat the entire consent-based mechanism of the AA system.

The Account Aggregator framework is new to the Indian fin tech market, which gives good reasons for the abovementioned apprehensions.

As stated by RBI’s Deputy Governor M. Rajeshwar Rao at an event, “the account aggregator ecosystem is still in a nascent stage of development. But given the sensitivity of the platform on account of the nature of data handled by it, it becomes imperative to ensure that the growth is orderly.”

While the advantages of having an AA network possess the potential to outweigh the costs, the framework must be integrated into the system prudently, keeping data privacy and the core concept of consent in mind.

At its nascent stage, AA network needs to be developed into a strong and steadfast system that benefits all. For this to happen, concerns around privacy and consent must be acknowledged and addressed to make the framework efficient.

(Khushi Jain is a second-year undergraduate law student at the Hidayatullah National Law University, Raipur. The views expressed are personal.)

source ;

Saturday, 11 September 2021

CBDT issues clarification regarding carry forward of losses in case of change in shareholding due to strategic disinvestment

 Ministry of Finance 



Finance Act, 2021 has amended section 72A of the Income-tax Act, 1961 (the Act) to inter alia provide that in case of an amalgamation of a public sector company (PSU) which ceases to be a PSU (erstwhile public sector company), as part of strategic disinvestment, with one or more company or companies, then, subject to the conditions laid therein, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss, or as the case may be, allowance for unabsorbed depreciation of the amalgamated company for the previous year in which the amalgamation was effected.

In order to facilitate the strategic disinvestment, it has been decided that Section 79 of the Income-tax Act, 1961, shall not apply to an erstwhile public sector company which has become so as a result of strategic disinvestment. Accordingly, loss incurred in any previous year prior to, and including, the previous year of strategic disinvestment shall be carried forward and set off by the erstwhile public sector company. The above relaxation shall cease to apply from the previous year in which the company, that was the ultimate holding company of such erstwhile public sector company immediately after completion of the strategic disinvestment, ceases to hold, directly or through its subsidiary or subsidiaries, fifty-one per cent of the voting power of the erstwhile public sector company.

The term “erstwhile public sector company” and “strategic disinvestment” shall have the meaning in Explanation to clause (d) of sub-section (1) of Section 72A of the Income-tax Act, 1961.

Necessary legislative amendments for the above decision shall be proposed in due course of time.



Friday, 10 September 2021

SC to Centre: You are dutybound to design a Tax System which is simple and convenient to all


On Friday the Supreme Court said that in a taxation regime, there is no room for presumption and it is the responsibility of the government to design a tax system which is convenient and simple so that an individual or a corporate can budget and plan.

The top court, which allowed a batch of appeals filed by banks held that the proportionate disallowance of interest is not warranted, under Section 14A of Income Tax Act for investments made in tax free bonds/securities which yield tax free dividend and interest to assessee Banks in those situations where, interest free own funds available with them, exceeded their investments.  

Section 14A of Income Tax Act deals with expenditure incurred in relation to income not includible in total income.

A bench of Justices Sanjay Kishan Kaul and Hrishikesh Roy said “With this conclusion, we unhesitatingly agree with the view taken by the ITAT favouring the assessees."  

Referring to the work of 18th century economist Adam Smith in The Wealth of Nations, the bench said it needs to be observed here that “in taxation regime, there is no room for presumption and nothing can be taken to be implied”.  

The bench said, “The tax an individual or a corporate is required to pay, is a matter of planning for a taxpayer and the Government should endeavour to keep it convenient and simple to achieve maximization of compliance. Just as the Government does not wish for avoidance of tax equally, it is the responsibility of the regime to design a tax system for which a subject can budget and plan”. 

The top court said that if proper balance is achieved, unnecessary litigation can be avoided without compromising on generation of revenue.

“In view of the foregoing discussion, the issue framed in these appeals is answered against the Revenue and in favour of the assessee. The appeals by the Assessees are accordingly allowed with no order on costs”, it said.

The bench said that its conclusion is reached because nexus has not been established between expenditure disallowed and earning of exempt income.  

“The respondents (revenue department), have failed to substantiate their argument that assessee was required to maintain separate accounts…The counsel for the revenue has failed to refer to any statutory provision which obligate the assessee to maintain separate accounts which might justify proportionate disallowance”, it said.

The bench said that the Central Board of Direct Taxes (CBDT) had issued the Circular on November 2, 2015, which had explained all shares, and securities held by a bank which are not bought to maintain Statutory Liquidity Ratio (SLR) are its stock-in-trade and not investments and income arising out of those is attributable, to business of banking.  

“Hence the income earned through such investments would fall under the head Profits and Gains of business. The Punjab and Haryana High Court, in the case…while adverting to the CBDT Circular, concluded correctly that shares and securities held by a bank are stock in trade, and all income received on such shares and securities must be considered to be business income. That is why Section 14A would not be attracted to such income,” the top court said.

It said that in the present case the High Court had endorsed the proportionate disallowance made by the Assessing Officer under Section 14A of the Income Tax Act to the extent of investments made in tax-free bonds/securities primarily because, separate account was not maintained by the banks.  

The bench said that when it enquired on this aspect about the law which obligates the banks to maintain separate accounts, the revenue department could not provide a satisfactory answer and instead relied upon an earlier verdict to argue that it is the responsibility of the banks to fully disclose all material facts.  

“An assessee definitely has the obligation to provide full material disclosures at the time of filing of Income Tax Return but there is no corresponding legal obligation upon the assessee to maintain separate accounts for different types of funds held by it”, it said.  

The bench said that in absence of any statutory provision which compels the banks to maintain separate accounts for different types of funds, the judgment cited by the revenue department will have no application.

The top court was interpreting whether Section 14A, enables the Department to make disallowance on expenditure incurred for earning tax free income in cases where some banks who are before the court, do not maintain separate accounts for the investments and other expenditures incurred for earning the tax-free income.

In absence of separate accounts for investment which earned tax free income, the assessing officer had made proportionate disallowance of interest attributable to the funds invested to earn tax free income.  

Since actual expenditure figures are not available for making disallowance under Section 14A, the Assessing Officer worked out proportionate disallowance by referring to the average cost of deposit for the relevant year.  

The Commissioner of Income Tax (A) had concurred with the view taken by the Assessing Officer.

The ITAT, however, accepted the banks’ case and held that disallowance under Section 14A is not warranted, in absence of clear identity of funds.  

The decision of the ITAT was reversed by the High Court by accepting the contention of the revenue department and thereafter banks have approached the top court.

Source Link


Monday, 30 August 2021

Finance Ministry extends last date to avail benefit of late fee amnesty scheme till November 30



 Finance Ministry has extended the last date to avail benefit of the late fee amnesty scheme from existing 31st this month to 30th November, 2021. Earlier, the government had provided relief to the taxpayers by reducing or waiving late fee for non-furnishing FORM GSTR-3B for the tax periods from July, 2017 to April, 2021, if the returns for these tax periods are furnished between 1st June to 31st August this year.

The Ministry said, based on the multiple representations received, government has also extended the timelines for filing of application for revocation of cancellation of registration to 30th September this year. The due date of filing of application for revocation of cancellation of registration falls between 1st March to 31st August, 2021.

The Ministry said, the extension of the closing date of late fee amnesty scheme and extension of time limit for filing of application for revocation of cancellation of registration will benefit a large number of taxpayers, specially small taxpayers, who could not file their returns in time due to various reasons.


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Thursday, 26 August 2021

RBI Spotted a Bunch of Leaky Holes at PNB – Just After the Nirav Modi Scandal Erupted

 The central bank's FY'18 inspection report for PNB doesn't paint a pretty picture – for either the RBI and the state-run lender. 

RBI Spotted a Bunch of Leaky Holes at PNB – Just After the Nirav Modi Scandal Erupted An image of an RBI logo and a security person is overlaid of a photograph of a branch of the PNB bank. Illustration: The Wire, Photos: Reuters


This is part two of a series on the RBI’s risk assessment reports for Punjab National Bank. Read part one here on the red flags the regulator failed to waive one year before the scandal broke.

New Delhi: If the Reserve Bank of India (RBI) felt all was relatively well at Punjab National Bank (PNB) a year before the Nirav Modi scandal was discovered, its assessment of the state-run lender just a year later indicates that almost nothing was right.

The central bank’s confidential annual inspection report for PNB in FY’18, obtained by The Wire through a right to information (RTI) request, takes a dim view of various aspects of the state-run lender’s functioning.

The report includes adverse remarks on a number of key areas including red-flagging of accounts, reporting of frauds, general classification of NPAs (non-performing assets), collateral management, internal auditing and market risk management.

In particular, the RBI notes that the Nirav Modi scam “widened the gap” between the bank’s “core values” and the “actual behaviour” displayed by the board and senior management. 

Notably, an internal staff accountability report that was put together in the aftermath of the scam resulted in the bank issuing more than 70 show-cause notices to its employees, both serving and retired.

However, the report grimly notes, “no case had been brought to finality as yet.” ‘Yet’ refers to late 2018.

These inspection reports, more formally referred to as ‘risk assessment reports’ (RAR) take place under the RBI’s ‘SPARC’ framework through which oversight is maintained over scheduled commercial banks.

The SPARC process is fairly comprehensive; the assessments also have an on-site inspection component. Ultimately, they are supposed to bring out the deficiencies in a bank’s risk management and processes, as well as provide an effective report card of the lender’s overall functioning.

The RBI’s clear perspective in the FY’18 report is forged through the power of hindsight. The sharp assertions seen in its FY’18 assessment are a sharp contrast to the FY’17 report, which was analysed and covered in part one of this series. Put together, they raise serious questions over the utility and efficacy of the reports themselves.

Board-level conduct

In the first half of 2018, heads started to roll at PNB  after the Central Bureau of Investigation got to work. Two executive directors were sacked, while former CEO Usha Ananthasubramanian (who in early 2018 had moved onto the top position at Allahabad Bank) was formally booked and named in the charge-sheet that was filed.

Despite this intense glare, the RBI’s report notes, PNB’s board audit committee bizarrely failed to update the scope of its ‘audit’ and take a broader view of the issue.

“Despite the large value fraud detected at Brady House Branch (BHB), the scope of the audit had not been updated and made robust by factoring the learnings from the fraud,” the report notes.

“There was inadequate focus in addressing systemic issues to remedy persistent irregularities, enforce timely compliance and design appropriate parameters for evaluating the performance of auditors,” it adds.

Some of this may have been due to the fact that the PNB board had four vacancies throughout FY’18 – six if you include the two directors who were sacked in May 2018. According to the RBI, the “persistent vacancies impacted the competencies and experience available to the board”.

Customers stand outside the Punjab and Maharashtra Cooperative Bank at GTB Nagar in Mumbai, Tuesday, Sept. 24, 2019.

In addition to this, the report points out, the directions of the board and risk management committee, with regard to exposure to the jewellery sector, were not being followed by the bank’s senior management.

“The framework of oversight by ACB was not comprehensively reviewed despite gaps observed in the light of the frauds. The directions of the Board and Risk Management Committee with regard to exposure management, particularly exposure to the jewellery sector, were not followed by the Senior Management,” the RBI notes.

Board oversight

The bank’s board, the report says, also failed to exercise appropriate oversight on the following matters (emphasis added by The Wire): 

Collateral management remained largely deficient on account of non-updation of correct value of security in the system, which in turn led to inadequate provisioning.

RMPs (risk management plan) of the previous year’s ISE (inspection for supervisory evaluation) pertaining to collateral management, NPA identification, KYC implementation, gaps in cyber security, timely reporting of frauds and accurate reporting of data in CRILC remained uncomplied. Some of these had remained un-compiled since ISE 2015.

Continued deficiency in NPA/NPI identification was observed as the bank failed to comply with this observation which was highlighted in the past years as well

The model scores in sectors such as infra, iron and steel, and NBFC were manually changed, ignoring the high levels of NPAs.

In comparison to the FY’17 report, the FY’18 report contains a lot more details on cybersecurity and the bank’s lack of competence in this area – a subject of particular importance, given the technology loopholes that Nirav Modi and his uncle Mehul Choksi were able to exploit.

In particular, the report notes that the:

Board’s oversight of cyber security functions was inadequate as the baseline controls stipulated in RBI’s cybersecurity framework were not implemented fully.

Further, a show-cause notice (SCN) was issued to the bank on August 23, 2018 for non-compliance of SWIFT related controls.

The CISO was not reporting to ED or equivalent executive, contrary to extant guidelines. The CISO’s office was inadequately staffed and was dependent on the IT division for budgetary requirements.

On auditing

The sharpest observations in the FY ’18 RAR report are reserved for PNB”s internal auditing policy.

In one section, the report lays out three failures by PNB’s internal auditing team, all of which directly allowed the Nirav Modi and Mehul Choksi scam to mutate and expand rapidly over nearly a decade.

Firstly, the internal and statutory audits failed to identify control gaps in sensitive branches, which “facilitated issuance of unauthorised LoUs [letters of undertaking]” at the Brady House Branch.

Secondly, the “non-rotation of employees” at PNB was not commented upon in the internal audit reports even though the policy specifically requires internal auditors to comment on the same. This observation is particularly crucial because many aspects of the PNB fraud ultimately boiled down to one or two bank officials who ran the alleged LoU scheme seemingly under the noses of everyone else.

Finally, the internal audit simply did not scrutinise all the “renewals/rollovers of LoUs/FLG/ILG/FLC” to ensure that they were in line with RBI and other internal policies.

Some of these issues could be chalked up to a lack of resources and incompetence, rather than malice. 

A PNB branch. Photo: PTI

For instance, the RBI report notes that while the bank’s policy clearly lays out the proper coverage and frequency for all audits, the actual allocation of resources (both for internal audits and third-party audits) was “not commensurate” with the number of transactions in a branch and substitution needs during leave.

“For instance, a single concurrent auditor was allotted to a branch (except a few places such as SWIFT Centre, CBOTF) irrespective of the number of transactions and replacement due to planned or unplanned absence,” the report notes.

But this issue naturally created a concerning backlog of work.

“On a sample check of credit audits in 32 taken over accounts of Rs 100 million and above, it was observed that audit was not undertaken in 23 accounts as per the specified timelines, with 19 of them spilling over to the next financial year. Similarly, audits of key processes within treasury, banking operations, loans and advances and foreign exchange business was not undertaken,” the FY’18 RAR observation notes.

On a final note with regard to PNB’s internal audit mechanisms, the RBI notes:

“The quality of internal audit was weak as reflected in i) large divergences in NPA and collateral management identified by the present ISE, ii) increase in number and amount of MOCs, iii) mis-classification of priority sector loans and continued deficiencies and non-compliance to KYC guidelines, iv) delay in internal audit of overseas branches was observed. Position of single/group borrower concentration in overseas branches was not put up to Senior Management.”

Errant borrowers?

As the screenshot below notes, the RAR report spends some time going through PNB’s lax behaviour with regard to cracking down on defaulters.

In another section, the RBI shockingly notes that PNB failed to initiate criminal action against “eight out of 10 wilful defaulters who had diverted funds”.

A few more observations, all with serious implications:

“In some instances (7 of 23 cases reviewed), the bank neither classified the borrower as wilful defaulter or nor had completed the identification process even though two years had elapsed since the initiation of the process.”

“Staff accountability was not examined in cases where sanctioning of loan and post-sanctioning monitoring process was found to be deficient.

“No borrower was classified as a non-cooperative borrower.”

“Though mandated by internal guidelines, there was no mechanism to examine or fix accountability of auditors of the borrowers who were negligent or deficient in conducting the audit.”

Spotlight on senior management,  

The report takes its time in pointing out problems with PNB’s senior management, noting that there was “inadequate involvement”.

“Persisting concerns like deterioration in the asset quality, weakness of internal audit framework and laxity in implementing risk management practices like mandatory leave/transfer/rotation policy indicated failure to address causative issues through systematic changes,” the report says.

“Non-reconciliation of recovery amount in the BHB fraud, lack of mechanism for implementing the new resolution framework of stressed loans, non compliance of RMPs and lack of integrity of data submitted under SPARC indicated inadequate involvement of senior management.”

In a curious aside, the FY’18 report also highlights how there were “instances of taking over three borrowal accounts without due approval from the board or proper justification from other banks, where the present MD and CEO and EDs had been posted”.

In the senior management’s defence, the RBI’s risk assessment team offers up a curious anecdote, sadly, which is partly censored – apparently due to confidentiality reasons.

As the screenshot below notes, the report presumably refers to a particular development at the bank and notes that this impacted the senior management’s ability to lead by example and provide an “environment which encouraged ethical business practices”.

Photo: The Wire. The censoring was done before the RTI reply was sent to The Wire.

Other key points

Risk governance framework:

“Critical control functions like compliance, internal audit and risk management were working in silos and there was no framework for regular interaction and structured information sharing among these verticals. “

“The role of the Chief Risk Officer as an adviser or a decision maker was not clearly defined and delineated in the risk governance framework. The appointment of the CRO was not for a fixed tenure and the minimum qualifications, tenure and experience required were not defined, contrary to extant guidelines.”

Compliance, in general

“The bank had a weak compliance culture as reflected in lack of compliance to both internal and regulatory guidelines on several aspects. From ACB agendas on Compliance Review of Circle Offices, it was evident that the internal compliance level was not satisfactory. The bank had breached the timelines prescribed by RBI for the pending RMPs of 2017. There was no assessment of compliance risk for formulation of plan to manage them. The Compliance Division was not preparing any annual report on compliance failures/breaches for placing before the Board/ACB and circulating to functional heads.”

PNB Inspection Report 2018 (5) by The Wire on Scribd 


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Wednesday, 18 August 2021

Income Tax Department conducts searches in NCR

 Ministry of Finance 


The Income Tax Department conducted searches on 16.08.2021 on a company engaged in trading of telecom equipment and installation and servicing of these items for various telecom players in India. Searches were conducted at 5 premises, including the corporate office, residence of foreign director, residence of company secretary, accounts person and the cash handler of a foreign subsidiary company in India.

The search revealed that the purchases of the assessee company were entirely from its holding company. Examination of import bills vis-à-vis sale bills show that there is huge gross profit (approximately 30%) on trading of these items, however, the company has been booking huge losses over the years. It is thus evident that losses are being booked by the company through bogus expenses in respect of services provided by it. Few such recipients have been identified in whose case, substantial expenses have been booked over the years. These entities have been found to be non-existent at their addresses. Moreover, the said entities also do not file their Income Tax Returns(ITRs). More such dubious entities are being examined. It is expected that bogus expenses would run into hundreds of crores over the years.

Drop / CPS

During the search, incriminating evidence has been detected in Whatsapp chats of the CEO, CFO and other key persons indicating illegal payments to telecom companies. Whatsapp chats also reveal payment of commission to a person based in Australia for purchase of shares of a telecom company in India. These transactions are being examined further. Evidence in the form of electronic data and physical papers, found during the course of the search shows that unaccounted money, running into several crores every year, has been brought back into the books in the form of bogus scrap sales, etc. Incriminating documents found from the electronic data of key persons, including the foreign CFO, show that the employees of the company were engaged in illegal currency exchange from Rupee to RMB. They were also found to be engaged in large scale illegal trade of medicines from India to China.


Examination of books of the assessee company shows large discrepancies. It has been found that the company has failed to deduct TDS on provisions made by them for expenses. During F.Y.s 2014-15 and 2015-16 the company failed to deduct TDS on such provisions amounting to more than Rs. 120 crore. The company has claimed expenses of more than Rs. 100 crore on account of provisions created by it for doubtful debts in F.Y. 2017-18. Similarly, expenses of hundreds of crores have been claimed over the years on account of provision for doubtful debts and provision for doubtful loans and advances. Admissibility of such expenses is being examined.

Further, the Assessee company has also declared only 2 bank accounts in its Income Tax Returns (ITRs) despite having around 12 operative bank accounts. Accountability of transactions in other bank accounts is being examined.

Issue of tax liability of hundreds of crores has been identified so far. Unaccounted cash of more than Rs. 62 lakh has been found at the premises. 3 lockers have also been found during the course of the search, which have been placed under restraint. Search operation is still continuing.


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Monday, 16 August 2021

PNB Scam: A Year Before the Scandal Broke, No Red Flags in RBI’s Assessment Report

 The RAR’s findings for FY’17 shed light on a range of operational risks, but do little justice to the structural holes that allowed Mehul Choksi and Nirav Modi to get away with the Rs 11,000 crore scam.

PNB Scam: A Year Before the Scandal Broke, No Red Flags in RBI’s Assessment Report 

 FILE PHOTO: The Reserve Bank of India seal is pictured on a gate outside the RBI headquarters in Mumbai, India, February 2, 2016. REUTERS/Danish Siddiqui 

Note: This is the first in a two-part series. The second part will deal with the FY’18 RAR report, which was prepared in the aftermath of the Nirav Modi and Mehul Choksi scam.

New Delhi: The Reserve Bank of India’s sensitive inspection report for Punjab National Bank (PNB) in FY’17 a year before the Nirav Modi and Mehul Choksi scandal broke is replete with examples of operational risks at the public sector lender but ultimately does little to warn of the massive controversy that would emerge a year later.

These confidential reports, which were accessed by The Wire through a Right to Information (RTI) request, are more formally referred to as ‘risk assessment reports’ (RAR) and take place under the RBI’s SPARC framework through which oversight is maintained over scheduled commercial banks.

The SPARC process is fairly comprehensive: the assessments also have an on-site inspection component and are supposed to bring out the deficiencies in a bank’s risk management and processes, as well as provide an effective report card of the lender’s overall functioning.

The FY’17 RAR for PNB highlights a wide array of potential risks and violations, which range from minor issues to slightly more serious problems.



For instance, it describes the involvement of the bank’s senior management in daily affairs as “inadequate”, citing how the majority of irregularities observed in the FEMA (Foreign Exchange Management Act) audit for FY ‘17 were “repeat observations” of the previous year, indicating a “lack of sustainability of compliance”.

The report also notes that there was “inadequate monitoring of overseas exposures, exposure to NBFCs, restructured accounts…” by the senior management.

And, more importantly,  even though there were instances of “serious frauds reported in many branches”, PNB had not classified these branches as “high risk”.

The public sector lender also apparently failed to classify certain accounts as special mention account (SMA) (standard as on March 31, 2016) which had already slipped to non-performing asset (NPA) as on March 31, 2017, which the RBI says signified “gaps in effective control”.

To top it off, the report notes: “There were many instances of KYC/AML [know-your-customer/anti money laundering] lapses and other customer information not being correctly assessed/captured…”

Overall, out of a compliance audit that was carried out for 3,107 “items”, wrong reporting of compliance was observed in 373 cases, a little over 12%.


Nirav Modi, Mehul Choksi

But ultimately, the RAR’s findings in FY’17 do little to in terms of examining the specific structural holes that allowed Mehul Choksi and Nirav Modi to get away with the Rs 11,000 crore scam.

This includes gaps in the SWIFT infrastructure particularly, the lack of linking it to the bank’s core banking solution (CBS) and the poor performance of the bank’s internal auditing team.

To be fair, the RBI’s FY’17 report does make a few adverse remarks on the “quality of internal audit”, but largely in measured and neutral terms.

“The quality of internal audit was affected due to inadequate human resources, lack of desired skill-set, non-adherence of stipulated times and absence of suitable enforcement measures in case of critical lapses by retired officials,” the report says.

It also does highlight that there was “no STP [straight-through processing] integration between CBS and various critical applications” and that CBS and K+TP (Treasury back Office) applications “were not integrated”.

 But, as the FY’18 RAR shows, with hindsight of course these were major flaws that perhaps should have been given more attention in a report whose sole purpose is to determine a bank’s risk and how well it is managing the same.

Whose fault?

In February 2018, the late Arun Jaitley took a potshot at the RBI in the aftermath of the PNB scandal.

“Regulators ultimately decide the rules of the game and regulators have to have a third eye which is to be perpetually open. But unfortunately in the Indian system, we politicians are accountable, the regulators are not,” the former finance minister had said, without specifically referring to the fraud committed by diamantaires Nirav Modi and Mehul Choksi.

Weeks later, the-then Central Vigilance Commissioner K.V. Chowdary also took the central bank to task, saying there had been “no apparent audit” by the RBI during the period of the scam.


The central bank’s defence at that time was that it had “very limited” powers to govern public sector banks and that it had alerted all lenders as to the potential malicious use of SWIFT infrastructure as far back as August 2016.

While there is plenty of blame to go around in India’s governance ecosystem, these RAR reports, the second of which will be published in Part II of this series, shed new light on the central bank’s oversight process.



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(With input from news agency language)

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