Indian Banks set to collapse
As a person involved in information security
area, and advising public on Cyber Crime issues, I often come across
information about frauds in Banks. One such recent incident has
triggered a huge concern in me that we may be in for a major bank
collapse due to inadequate security systems in the Bank and
inadequate supervision from the Reserve Bank of India.
Being an ex-Banker myself, I am fully aware of
how a Run on a Bank may get triggered leading to failures. One such
trigger is the lack of customer's trust in the Banking system
created by repetitive frauds that occur frequently.
I am now sensing one such shock about to unfold
in a major Bank in India. The sad part of the observation is that
the reason for the imminent collapse is "Technology" which is
actually a potential driver for growth when harnessed properly.
Technology when introduced without appropriate
"Security" erodes the fundamental building block of the Banking
system namely the "Trust".
Today, how many of us can touch our heart and say
that "our money in the bank is safe"?.
It was interesting to observe that in the recent
workshop on "Impact of ITA 2008 on Bankers" conducted at Bangalore,
most of the speakers (who were obviously security experts) said that
they never use Internet Banking because they donot trust the
security in the system.
Unfortunately, we are today living in a world
where merely avoiding Internet banking, we cannot be completely away
from the risks of associated with insecure Banking. For every
security aware bank customer who avoids Internet Banking, there are
hundred more customers who use Internet Banking. If 10 of those 100
fall into a fraud trap, then they will sweep away the rest of us as
the Bank itself hurtles towards failure.
Why is that I am speaking of these threats?
It is because, I recently came across a Phishing
incident in a bank. The customer is one of those who is not using
the facility for third party transfers and uses the facility to only
view his accounts. Unfortunately he observed that in a series of
midnight fund transfers followed by ATM withdrawals, more than Rs 5
lakhs was cleaned out of his account.
What was special about this fraud was that the
fraud money was transferred to 15 different persons in different
parts of the country involving some dozen branches of the same Bank.
When it was further analysed, the accounts of 15
fraudsters contained evidence of several more such fraudulent
transfers over an extended period of time. In some accounts three
fraudulent credits were seen in three successive days.
It was clear from the records that the Bank was a
host for a crime syndicate which diligently distributed the fraud
amount of several lakhs equitably to the members of the gang.
As usual the Bank did not take any remedial
action on the reporting of the fraud and perhaps the gang enjoyed
the patronage of the bank either by choice or by apathy.
If I could observe around 50 fraudulent
entries in a space of three days transactions of just about 15
customers of a Bank, one can see what could be the extent of such
frauds in the Bank.
It appears that one of the reasons that inflation
is high and monetary flow is uncontrolled in the economy is that all
over India the network of Cyber Crime syndicate has firmly
established itself and a number of persons are using Bank
frauds as their livelihood.
I can now state with conviction that if any body
holds his account in this bank, he is probably placing his funds at
the risk of being robbed any day. I anticipate in due course that
this news will percolate to the customers of the bank and the bank
will see an erosion of its deposit base. Fortunately the bank is
large enough to absorb some shocks but I am afraid that the problem
may be too much even for the large Bank if corrective steps are not
initiated immediately.
While we can blame the Bank, its Information
Security team and the CMD for pushing the bank to the brink of
collapse, it is necessary to ask searching questions at the Reserve
Bank of India and the Indian Bank's Association as well as the
Ministry of Finance about their failures in safeguarding the banking
system in India.
Last but not the least, it is necessary to also
question why the media is not able to recognize that the situation
is grave enough to destabilize the Indian economy and there is
a need to draw the attention of the authorities.
I call the attention of responsible journalists
to get in touch with me so that I can share more dark details about
why I consider that the Indian Banking system is on the verge of
collapsing.
Naavi
Nov 4 2010
