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SBI...and TCS.. owe an explanation




This is in continuation of the first part already published.

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/-.

Similar mistake 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 deposit.

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 crores.

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 above.

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 repeated.

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 actually paid.

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 problem.

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 a remedy.

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.


January 12, 2006

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