This is in continuation of the first part
It was pointed out in the previous article that at one of the branches of State bank of India Bangalore,
an examination of a customer complaint lead to the observation of several
anomalies which have been elaborated here.
It may be noted that the Bank had introduced a new software system some times
back which is a Core Banking system managed from Mumbai. The system is
said to have been bought from an Australian Firm and customized by TCS.
a) Customers are getting less interest than they should get as per contract
The Bank introduced a new deposit scheme last year for "Senior Citizens" according to
which an interest of 9 % per annum was payable. It is in this account that there
appears to be several problems. In one of the accounts brought to the notice of
the undersigned, the account has been running for about one year and the total
principle value is Rs 125,000/- deposited in five different deposits of RS
25,000/- each. Interest is payable quarterly.
The actual interest payable on the accounts each quarter amounts to Rs 562.50 or
RS 563 (if rounded off). Interest for the period upto 31st December 2005 taking
into account broken period at the beginning of the deposit amounted to Rs
8808/- at the contractual rate of 9% p.a. The actual amount paid to the customer was Rs 8693/-.
was found in another set of 5 accounts also.
This means that a short payment of Rs 115/- was made to the customer over a period of one year and it is likely
that over the deposit period of 5 years the short payment would be around Rs
575/- for each of the above two depositors. It is presumed that over 60 customers in this particular branch have
similar problems. This means that there would be a short payment of over RS
30,000/- in a period of 5 years in this branch alone in the particular type of
If similar errors are there in the normal deposit account and in all
branches of SBI the short payment to the public would run to several hundred
Additionally, it is found that in different quarters interest is paid for
different amounts and is adjusted subsequently. There were payments from Rs 550
to RS 559/- and one payment of Rs 685/- made to the client which were adjusted
some times with further payments of Rs 1, Rs 4 etc There were some cash payments
made to the customers which resulted in duplicate payments and the adjustments
did not correct the payments properly leading to the net short payment mentioned
It is not only the net short payment which is objectionable but also the
inconsistent payments made by the Bank which indicates adhoc correction attempts
which has not been properly accounted for by the software.
b) The amount of interest debited to the Interest payable account does not tally
with the amount credited to the customer's SB account.
At the next level it was observed whether the amount paid to the customer (Rs 8693/-)
atleast tallied with the amount debited to the account within the books of the
account. It was observed that the FD accounts showed a total interest payment of
Rs 9414/- compared to which the actual payment was RS 8693/-. This means that a
sum of Rs 721/- during this one year was excess debited to the "Interest paid
account" (or a similar head of account).
It is not clear what happened to the excess amount and whether it was credited
to some other account or to a suspense/sundry creditors account. This is a
potential "Fraud" prospect. The amount involved per customer in one
year is in the range of RS 721/- which would be over RS 3600/- in the span of 5 years which is
the life time of the deposit. Translated into the Bank level the total unreconciled amount would be some mind boggling figure.
It is learnt that over Rs 68,000/- crores (Not independently verified) lie in
Suspense accounts in SBI which gives an indication of the extent of possible
risk buried in the unreconciled accounts in SBI.
c) The amount of interest paid to the customer does not tally with the amount of
interest credited internally to the interest payable account leading to the
payment of interest from the capital account of the fixed deposit in violation
of RBI guidelines.
Further it was observed that while the total amount paid to the customer was Rs
8693/-, total amount debited to the Interest paid account which ought to have
been reflected in a credit to the SB account of the customer was Rs 9414/-, the
actual amount debited to the Interest payable account was Rs 8034/-.
The software is treating the excess payment made as a reduction of the principle
amount as if the account is a running account like an SB account. The deposit
being of Fixed Deposit nature, it is incorrect for the software to reduce the
principal amount. This indicates an error in the software design.
d) There is an indication of existence of huge unreconciled amount within the
branch which has not perhaps been adequately handled by the auditors.
Though the transfer between Interest payable and paid account is an internal
entry of the Bank, it is difficult to understand why there should be a
difference of Rs
1380/- between these two figures. If nothing else, this should become an
unreconciled amount in the Bank' books and reflect in the audited balance sheet.
However neither the Internal Auditors, nor the External Auditors appear to have
identified these errors.
e) The Branch staff is unable to fathom the essence of the problem since the
account is managed from the central server in Mumbai.
It is found that the Branch staff is unable to explain why there should be
different figures of interests in different contexts as explained above. The
only answer they are able to provide is that the software is handled from Mumbai
and any corrections can be handled only by them.
f) The staff appear to be inadequately trained to handle exceptional situations
and software bugs.
It is clear that the staff are not able to handle exceptional situations such as
payment of interest in cash (Which has arisen when there was delay in the credit
of the interest from Mumbai and customers routinely called on the Bank to
withdraw the interests on a specified day). They cannot also handle the
differences that are shown between "Interest Payable", "Interest Paid","Correct
Interest payable" and the "Actual Interest paid". There is apparently inadequate
training of the staff for which the IT department should take the blame along
with the HR department.
g) Neither the vigilance department nor the customer relation department of the
bank has taken the problem seriously for rectification
The issue results in customer dissatisfaction and also provides a reasonable
ground for the existence of a fraud. It is more likely that the fraud is in the
software department or with the software vendor himself. This therefore calls
for an audit of the software from a third party and action as may be desired. In
the meantime the PR or Customer Service department needs to take action to
contact customers and assure them that their problems are being addressed.
On the other hand the senior citizen customers are left to visit the branch
again and again to get their payments reconciled and in the process the branch
staff are made to spend time in what should otherwise be used for productive
purposes. Additionally the relationship with the customers are being permanently
spoiled. Top management of the Bank needs to address these twin issues of
vigilance and customer relations.
h) The software vendor has not shown any interest in sorting out the mess though
there is a clear indication of a software bug. (Probably the matter has not been
brought to their notice)
If a problem of this type is indicated the greatest concern should be shown by
the software vendor, in this case TCS which is supposed to be the largest
Software company in India. It would have been natural if a team had been sent by
TCS to check on this complaint and find out if it is due to any bugs in the
software. It is however possible that the matter has not yet been reported to
them as a possible software bug or as a possible fraud by any of their employees
who might have introduced a Trojan in the system to siphon off money belonging
to the customers.
i) The problem is not restricted to a single case and according to information
available there are nearly 60 accounts in the branch in which the problem has
The fact that the problem is repeated in the accounts of a number of customers
mean that it is probably an error associated with the software.
In case SBI has to eventually meet any liabilities arising out of this problem,
perhaps TCS will have to indemnify SBI and make good the amount.
j) The anomaly in one respect is in the range of 16 % of the interest
amount involved which indicates an alarming position.
The reconciliation anomaly is represented by the difference between Rs
9414/- debited to the Interest paid account, and Rs 8034/- debited to the
Interest payable account. The difference is Rs 1380/- This amounts to
14.7% on interest paid account (expenses account) and 17.2% on
interest payable (provision account) account. This is in addition to the anomaly
of 1.3% between contractual interest payable to the customer and what is
The excess debit to interest paid account (RS 9414/-) in comparision to the
interest paid (RS 8693/-) amounts to 7.7 % of interest paid which is the
potential fraud level.
Since the amount involved is very huge, it is beyond the scope of TCS to meet
this liability if it has to indemnify the Bank. It may even be beyond the scope
of SBI to meet the provisions connected with the bad debts arising out of this
It is therefore necessary that the Stock Exchanges are immediately put on alert
so that the investors in SBI and TCS shares are alerted about the possible
liabilities arising out of the problem.
In the meantime there is a need for a team of experts to immediately be
constituted by RBI to undertake a quick assessment of the situation and suggest
Nasscom should also take note that one of the leading software companies is
involved in the issue and it is necessary to clear their image failing which the
credibility of software industry would be affected.
We await response from SBI and RBI so that public can get the necessary
clarification. In case any corrections are required to be made to the
information given above which has been collected from reliable sources, the same
would be made on receipt of the clarification from the Bank.