The Reserve Bank of India (RBI) is currently in the process of establishing a dedicated wing specifically designed to oversee banking fraud. This specialized department will include teams for meta-data processing and analysis, artificial intelligence (AI) analysis units, and proactive risk assessment cells.
The Structure and Staffing of the Fraud Oversight Wing
The projected Fraud Oversight Wing could potentially consist of up to 600 officers. These officers will be newly hired, fresh faces, which may include industry veterans selected to spearhead the teams. The RBI will also bring in experts from the private sector to work alongside these officers.
Training the Personnel: Building a Robust Defense Against Banking Fraud
The private sector experts who join the Fraud Oversight Wing will play an instrumental role in training the new members. This training, covering all areas of the wing’s operations, will be held annually in the initial years. To ensure the team stays current with technological advancements, they will also receive regular instruction in cutting-edge technologies. This comprehensive training strategy is aimed at preventing future occurrences akin to the Yes Bank debacle.
The Genesis of the Fraud Oversight Wing: Responding to a Crisis
The genesis of the Fraud Oversight Wing can be traced back to the loan scandal at Punjab National Bank involving diamond merchant Nirav Modi. This incident led the RBI to consider strategies for proactively identifying such fraudulent activities. In 2019, the RBI attempted to assemble a separate cadre of its employees to work in regulation and oversight roles. These positions came with stringent conditions, including a three-year commitment with no options to leave. In response to these harsh conditions, the concept of a Fraud Oversight Wing was introduced.
Learning from the Yes Bank Case
Despite the presence of RBI representatives on the Yes Bank board, red flagging risks proved difficult due to their lack of experience in credit risk assessment tasks. The RBI took aggressive action on March 5 by superseding the board of Yes Bank and imposing an immediate moratorium. During this period, withdrawals were capped at Rs 50,000. In addition, the RBI appointed the former Chief Financial Officer of State Bank of India (SBI) as the bank’s administrator.
The Reconstruction Plan for Yes Bank
As part of the reconstruction strategy, the RBI suggested the potential acquisition of a 49% equity stake in the troubled bank by SBI, India’s largest bank. SBI has since committed to an investment of up to Rs 7,250 crore in Yes Bank.