Header image alt text


Building a Responsible Cyber Society…Since 1998

After the surfacing of the Nirav Modi-Mehul Chokshi scam in PNB, media is on its own interpretation some of which are politically motivated and some are born out of lack of information. According to NDTV and some other media, the loss may be over Rs 20000/- crores. Rahul Gandhi who may think he belongs to the Mahatma Gandhi family but he is still struggling to distinguish if Nirav Modi is the cousin of Narendra Modi. Mr Singhvi is caught in the “Unaccounted Money” allegations. The Alpha files and deep throat are also in the fray making this a great time for TRP oriented media.

Negligence in Banking is universal

The Dinesh Dubey revelations may appear sensational to Mr Arnab Goswami but the fact that Bank Boards are manipulated by the politicians is well known. The UPA Government which had mastered the art of making money by exploiting the land, see, air and even the spectrum, could not have missed an opportunity to take money directly from the Bank. Hence if Mr Narendra Modi says that when he took over, NPAs were more than 126000 crores and he could not have publicised it without hurting the industry, it does not come as a surprise to observers like us. From the old Indian Bank fraud to Harshad Mehta Fraud, we have seen enough of frauds in the Banks to believe that if Digital Banking is indiscriminately promoted, fraudsters will make merry.

If Global Bankers have a system where by  SWIFT message from a deputy manager of a Bank can be used to lend Thousands of Crores to one company by several banks, then the problem is that Digital Bankers of the day donot know the Risks inherent in Banks. This includes even the wisemen in RBI who are good paper pushers.

Naavi.org had its own share of “Dooms day predictions” in Banking and there are plenty of articles in the past highlighting a day of this nature when Cyber Frauds or Frauds in the Cyber Banking scenario could be huge enough to wipe out even big Banks.

For a long time we have held that RBI has no control over influential Commercial bank Chairmen. We have stated this in the context of ICICI Bank, State Bank of India, PNB and  Axis bank where we had observed frauds, brought it to the notice of RBI and found no action was taken. We had even demanded that some branch licenses of ICICI Bank and PNB should be suspended as a deterrent. Some of these Chair persons have held influential positions in IBA which has been more powerful than RBI. Hence many security guidelines of RBI are simply ignored by IBA and RBI has done nothing to enforce its authority.

As a result, the negligence and apathy in the Banking industry continues. Security is always subordinated to profits and hence we see weak IT systems and opportunities for frauds increasing by the day.

Yesterday, City Union Bank has also been confronted with the SWIFT fraud in which three fraudulent remittances seem to have been attempted. One of this has been prevented. One more may be retrieved quickly. Other may require some effort. But the fact that CUB faced the same problem which Bank of Bangladesh suffered long ago shows that our Banks donot learn lessons.

There is presently no doubt that officials of PNB were involved in the fraud to favour Nirav Modi-Mehul Chokshi. They might have been pressurized politically at the Chairman level. It is only when Mr K.R.Kamat the former Chairman of PNB is queried about some of these transactions, that the truth may come out.

In this confusion, we should not forget that it is not only PNB that should be hauled up, but each of the Banks which gave funded loans to Nirav Modi-Mehul Chokshi firms based on a SWIFT message from a junior officer without following the 90 day RBI norm or examining the end-use of funds and feasibility of the operations.

As Mr Dinesh Dubey’s statements indicate, there was political conspiracy where by multiple Bank Chiarmen were made to provide funded loans against the PNB’s LOUs. Hence all these Banks are part of the conspiracy to siphon off Rs 11000 crores or whatever amount we finally end up with as the loss in the funded accounts. It is for this reason that RBI should not force PNB to take all the liability and leave out the other Banks from the conspiracy. If this is forced, it would mean that RBI itself would be guilty of abetting the fraud.

The other independent Directors who were complicit with these frauds should also be questioned in each of these Banks.

The contribution of Finacle sofware

Another neglected aspect is the Company that is responsible for the Core Banking Software used in Indian Banking system which happens to be our beloved Infosys. The system is FINACLE. After the few PNB phishing frauds that I had come across, I have raised my voice against FINACLE not being Cyber Law Compliant. Now this PNB fraud indicates some of the systemic weaknesses in the Finacle software.

I am sure that my friends in Infosys will immediately object to my drawing their name into this controversy. When I objected to Finacle Marketing chief hailing it as a platform for Bitcoin usage, I had many of my friends displeased. But the reason why Infosys should find itself reviewing its own contributory role in this Banking fraud is because it appears that the software is not built by design to prevent such frauds.

Software developers may conveniently say that it is for the software user to provide specifications and the developer will provide a solution as desired. If the solution facilitates frauds, it should not be the responsibility of the software developer.

They may say that “Releasing a Software with Bugs is their right” and what conventional Bankers like the undersigned may dub as “Fraud friendly specifications”, is the responsibility of the Bank using their software.

I am aware that in the past developers of the Accounting software “Tally”  telling me that some security features in the software was deliberately removed in subsequent versions because the users wanted “Flexibility” in the accounting. The flexibility wanted by the users was the ability to manipulate accounts so that false accounts can be created without the log system capturing the manipulations. This facilitated a fraud in an Exporter’s firm in Chennai in whose investigation, I had participated. Tally succumbed to this marketing pressure and fell into the practice of “Customization for Customer Convenience”.

It is possible that Infosys might be in the same situation where for commercial reasons, they have to configure FINACLE to facilitate convenience even though it makes it easy for fraudsters to misuse the system.

Today everybody is asking why The PNB’s SWIFT messaging system works outside CBS.

If certain messages sent out of SWIFT creates liabilities (contingent or otherwise) for PNB, and has to generate a corresponding “Margin Money Demand” and “Guarantee Commission Credit”, then FINACLE should have ensured that the messages are generated only from within FINACLE only.

If PNB officials did not want it this way, Infosys should have documented the request with the reasons. If Infosys developers were aware of “Banking” in depth, they would have immediately sensed that the request is made only to keep a “Backdoor for fraud” that can be exploited.

Infosys failed to show the commitment to prevent a “Fraud Friendly Configuration” to prevail which could hurt the society.

I would be happy to receive a clarification from the FINACLE team if my conjecture is wrong. I would expect Mr Nandan Nilekani to order a review of the security features of Finacle without restricting the definition of security to only the CIA principle of technical security but extending it to “Security of the underlying business which the software supports”, which is the “Total Information Assurance” principle.

Role of Auditors

We can now shift our attention to the auditors and Information Security department of PNB. Should they not have seen the “Vulnerability” in the CBS system and flagged it as a risk?.

Probably these are auditors did not understand how the IT system of Financle could be misused. Even if they were not IS experts and had to believed the management statements, the nature of financial transactions, the 365 day window provided for the LOUs, the frequent roll overs etc should have given them the clue.

Internal auditors who should be Techno Banking specialists also failed to note the suspicious patterns.

I am sure that SWIFT messages are separately audited and at least it should have been reconciled with margin money and guarantee commission account which the auditors ignored.

The Board which should provide an annual declaration under clause 49 of the listing requirements in the annual report stating that there are “Adequate Controls and the correct financial statements are reflected” have made false statement for which the entire board of directors are responsible.

The same questions of internal controls of auditing failures applies in each of the other Banks who are today claiming that they trusted the LOU of PNB and blindly paid out money in thousands of crores to beneficiaries. We are not fools to accept this argument.

I consider that the issue of loans by all these Banks under circumstances where the business feasibility was doubtful and known norms flouted, is a prima-facie evidence of the involvement of employees/Directors/CMDs in all these Banks (6 or 32?) in a great Banking fraud conspiracy.

CBI must enquire all these employees starting with Allahabad Bank Board members on whom specific information is now available.

Demoralization Effect

As an ex-banker, I am aware that this fraud which cuts across many Banks will have a demoralizing impact on the employees when CBI extends it’s net wide. We have seen this happen after the Indian Bank fraud surfaced two decades ago.

It is for this reason that Media should stop creating panic and putting pressure on BJP Government. Instead, they should try to instill confidence in the public that what the Government is trying to do is a very sensitive operation and has to be done discretely.

While the anti national forces which includes the present version of the Congress party would like to create more confusion with its demand for JPC so that the thieves can themselves be the judges, Government of India should resolutely move towards cleaning up the mess. Less they talk, better it is.

Only one word of comfort from Mr Arun Jaitely or Narendra Modi that proper action would be taken should suffice. All the spokes persons should stop talking on this scam even if they are tempted to do so because of the utterances of the opposition. The “Professional Panelists” like Sumant Sriram et.al, should be kept out of the channels for some time so that a sense of responsible reporting returns to the media rather than shouting for political gains.

In the process,  we need to root out corruption in Banking and ensure that the future of Banking is saved. Let more heads roll and more bodies go behind the bars. It will be in good cause.

Indian Banking system has many honest individuals who can raise to meet the challenge, fill the void even if 25% of the top management in Banks are removed and manage the turmoil. All the independent directors of the 6-32 Banks who were complicit in the conspiracy should be removed forthwith and brought into the enquiry process.

This will have its share of demoralization in the industry. But it will spur the honest Bankers in the next level to work more honestly than before and restore the Banks back to health.

This is like the Kargil fight. We might have lost the battle but let us fight to win the War. Just as in the demonetization days, the public supported Mr Narendra Modi, they will support him even now.

Let’s therefore tighten our seat belts and let Mr Narendra Modi shake up the Banking system.

May be the above ad from PNB on its home page is meaningful in the current context.

P.S: It is now reported that Level 5 password for SWIFT which only AGMs could use was shared by Mr Shetty who was a deputy manager with the officials of Nirav Modi so that they could issue their own LOUs.

This means that the password was first shared by the AGM with Mr Shetty and the system was not configured to link the hardware ID from which the SWIFT could be accessed. Normally the adaptive authentication system should prevent logging in to SWIFT except from a designated computer. The IT Manager, the IS manager, the AGM himself all deserve to be put to jail for giving away the key to the strong room to the fraudster.

If the software had been designed with this possible use case in picture, such logging in would not have been allowed even if the fraudsters had come to Mr Shetty’s cabin and operated his computer since the AGM’s password should have been linked to his computer.

It also means that there was no digital signature or biometric authentication either to the SWIFT application or to the computers authorized to access SWIFT application. (Refer India Today article)




The fact that Technologists have scant regard for law is well known. The developments in the Bitcoin scenario is an indication.

Despite Bitcoin is the established “Currency for the Criminals” and “Black Money Hoarding Tool”, technologists say “So What?… I will do what I want.. Let Modi catch me if he can”. Some will say it is “Innovation for Disruption”.

RBI does not have the courage to do what it knows is good for the society…that is banning private Crypto Currencies like Bitcoins like we ban drugs and arms trading.

One of the ways by which Crypto Currency is trying to establish itself is by making Block Chain technology creep into Banking transactions and gain a level of respect that will latch onto Bitcoin as well in due course.

Few in the public will realize that Block chain is a technology and Bitcoin is a product and Blockchain may be acceptable but Bitcoin is not. Bitcoin will be promoted on the adoption of Block chain as a technology under the pretext “Block Chain is adopted by Banks and hence Bitcoin is also likely to be adopted by them soon”… The myth will be corroborated by the news about the price of Bitcoins soaring.

We need to therefore to ensure that Block chain technology does not have an unfettered entry into the system. If Bitcoin has to be blocked, Block Chain’s limitations need to be exposed.

Now we have the dangerous tendency creeping into the Banking system where “Block Chain Technology” is being implemented for different transaction recording. ICICI Bank has reportedly made transfers of Bitcoins from Gulf though the legality of Bitcoin is itself not settled. As long as Bitcoin is being treated as a currency, it is illegal and any Bank indulging in activities related to Bitcoin is violating the RBI Act.

Today, it is reported that InfosysFinacle  has launched a new product “Finacle Trade Connect” incorporating the blockchain based trade finance solution for banks.

Mr Sanat Rao, Chief Business Officer speaking at the time of launch has stated ” the new solution will provide higher automation, increase transparency and enable real-time availability of data”.

Significantly, he has also said

“The framework is ledger agnostic and is capable of working with most industry leading blockchain platforms such as Bitcoin, Hyperledger, Ethereum and Corda”.

This is therefore to be construed as a promotion of Bitcoin, Ethereum and other “Criminal Currency” and Infosys will today join the ranks of terror sponsor organizations like People Front of India (PFI) in radicalizing the Indian Monetary system.

It is unfortunate that the business case made out by Infosys Finacle is to provide a platform for use of Bitcoins and other private Crypto Currencies which are an alternative to holding of Black money.

This is a direct affront to Mr Modi’s fight against corruption and fight against Black money and today Infosys Board including Mr Narayana Murthy and Nandan Nilekani has to explain the statement of Mr Sanat Rao.

I also state yet again, Mr Urjit Patel the Governor of RBI is allowing these developments because he has chosen to remain silent without showing the guts to oppose Bitcoin. I have no expectation from Mr Arun Jaitely and the Finance Ministry because I feel that they are actually in support of Bitcoins and are only held back by RBI’s opposition and possible Supreme Court intervention.

Where does Mr Modi and Amit Shah stand on this? As of now it is not clear. Though I have sent many communications to the PMO, Mr Modi and the PMO has chosen to remain silent because they donot want to go against Mr Arun Jaitely’s advise. I presume that Mr jaitely is still reeling under the pressure of managing the fall outs of demonetization and GST and is unable to take any other hard decisions and will be happy to procrastinate and keep “Observing” how Bitcoin creeps into our economy.

We Indians did the same mistake of allowing terrorism creep into Kashmir and today Kashmir is a problem that has become too difficult to handle politically. Same way Bitcoin if not killed today will eat into Indian Economy and devour our system.

While the politicians wait for the Gujarat elections to be over, I would like to ask some questions to RBI and IDRBT.

  1. Finacle Trade Connect is meant to be a product to be used in the Banking system. Is it not necessary for IDRBT to clear the software? Has it been done?
  2. Block chain is a technology of ledger keeping where there is no central authority for authenticating any transaction. It is a peer to peer authentication. Our Banking system involves a Banker-Customer contractual relationship. If I as a customer of a Bank propose a transaction to the Bank how can some Tom Dick and Harry operating a block chain node approve my transaction? Is it not a power of attorney holder of the Bank alone who has the right to approve my transaction?
  3. Why should every block chain node at all be aware of my transaction even if it is encrypted?
  4. How does Banking law permit disclosure of my confidential transaction to be published on the block chain?
  5. Who will take the liability if the approval is defective?
  6. What if the block chain forks?
  7. Since Block chain is a public chain, is it not amenable for DDOS attacks and malware injection?.. Who will be responsible for such malware attacks?
  8. Is the statement of Finacle indicative that IDRBT has approved Bitcoin as a technology and Banks are preparing for use of Bitcoins in their transactions?
  9. Since Infosys is the organization behind GST which had many technical glitches thanks to their inefficiency, will Infosys also push the Block Chain technology to GST as well?
  10. Dear Mr Modi, are you aware of the implications of remaining silent on Bitcoin introduction into our economy?. I donot see any difference between this and the poisoning of the Indian minds by organizations like Zakir Naik and PFI. Why are you shying away from taking control of this Black money alternative called Bitcoin?

I look forward to agencies like RBI and Finance Ministry to respond to these questions. Honest India wants to know if Corruption has grown so big that even Mr Modi has to bow his head before Bitcoin?


P.S: As an honest Citizen of India, Naavi has done enough to highlight the dangers of Bitcoins and why it needs to be banned in India. If the Government, RBI and informed members of Public still wants to embrace Bitcoins it is their choice.

However, if the Indian economy collapses, then even people like us will have to suffer. But if this is the future of India we have to suffer and the concept of Achche Din, perhaps Naavi has to also accept defeat that Corruption in India is the king and Bitcoin which is the most effective tool of corruption cannot be defeated…. 

Hope this is the last article on Bitcoin that I need to write…



New Banking Licensees- Beware of IT Companies who want to trap you.

Posted by Vijayashankar Na on July 9, 2013
Posted in BankCyber CrimeRBI  | Tagged With: , , , , , , , | 1 Comment

RBI has now invited applications for new banking license from private sector which has attracted 26 aspirants to make an application. Many of these are thinking of building their Banking empire on the edifice of technology.

Already, Indian Banking system has become extremely “Technology Dependent”. In fact RBI is making it mandatory even for RRBs to run on “Core Banking Platform”. RBI looks at Core Banking Software systems as a means of better information collection which may help RBI in the administration of its monetary policies. However, in the process RBI is forcing a banking platform which is unfamilar to the Bankers unmindful of the unsafe nature of the software.

The “Eurograbber” risk that has resulted in more than 36000 banking frauds across the European countries and is threatening to enter India. Once it hits the Indian shores, it can destabilize even the strongest of the strong Banks who are operating in India at present.

At this time the new Banking entrants appear to present an even higher risk for the Customers than the existing Bankers since their technology dependence is expected to be higher.

One of the reasons why these new Banks will be more technology dependent is that they will chase profits in a competitive world as late entrants they need to make money by being more efficient. This of course is a good strategy and perhaps even inevitable.

Even before the applicants can be sure about getting their licenses, the IT Companies are already behind them to sell their “Core Banking Applications”. Some of them may even like to be called “Partners” is setting up the new Banks. This again is a genuine marketing activity and is to be expected.

However in the process of listening to the high profile marketing pitch from IT Companies, the new Banks should be aware of the dangers of setting up their Banking entity as a dependent entity on the technology platform supplied by the IT Companies.

We must remember that all these companies are supplying “Core Banking Systems” that have not only failed to stop the Euro grabber type of Trojans but are also not cyber law compliant since they are using “Password based authentication systems” instead of “Digital Signature Based authentication systems”.

Since many of the new Bank license applicants are not fully conversant with the Information Risk environment in the Banks and at least some of them are new to the Banking system itself, they could end up becoming over dependent on the software in driving their Banking business.

Bankers should understand that it is not Infosys or Oracle or Tata Consultancy that will determine how the Banks need to carry on their Banking activities. IT is only a tool with which Banks do their business as defined by the Banking regulation act 1949.

In the past these IT Companies have hoisted under performing software on the industry which is one of the root causes for the information risk inherent in the industry today. These IT companies sell software which is convenient to them and not what is safe for the customers. This is the reason why the “Eurograbber” or “Zeus” type of trojans can make merry in the system.

Unless the Bank owners demand a “Secure Banking Software” as a pre-condition these IT Companies will continue to make money at the expense of Bank customers.

Even the Banks need to ensure that they have enough internal expertise in “Core Banking” with which they can evaluate the functional aspects of a software and identify the security loopholes. Unfortunately many of the new generation Banks think banking to be a “Customer Acquisition Marketing program” and engage professionals who are good in marketing but have little knowledge of the domain. They consider each customer as a “Profit Center” and try to maximize the profit per customer. In the process, if the customer collapses, they donot mind and move onto the next customer.

We need “Customer Centric Bankers” who keep the interest of long term customer relationship as the key principle of banking and convert it into software specifications. The present situation where Banks are reluctant to use Digital Signatures for banking authentication and ignore the need to use “Real time risk management software” are indications of the fact that most Bankers are not able to understand the Banking risks and how it translates into information risk in a technology banking area.

Though there has been an improvement of information security practices in some Banks in the last 6 months, many Banks are far below the expected level of security.

The new Banking license aspirants should therefore avoid falling a prey to the IT Companies by accepting their proposals on the dotted line and demand that the software vendors assume the responsibility for frauds arising out of technology issues.

Customers are indifferent as to whether the technology vendors bears the risk of technology frauds or the Bankers but are keen that RBI makes Cyber Crime Insurance mandatory for the new Banks as a part of the licensing regime.

Older Banks may be happy with the proposal since it will create an additional barrier to the new Banks. It is left to the RBI to decide if Cyber Crime Insurance should be made mandatory even for the existing Banks. But even if Cyber Crime insurance is not mandatory for existing Banks and becomes mandatory only for the new generation Banks, it could become a factor of differentiation with which new Banks may promote their deposit products.

Whether the Banks are happy or not, if RBI makes Cyber Crime Insurance mandatory for new Banks, it would make the customers of the new Banks happy.

This should also add to the viability of the new Banks amidst the pressures of Financial Inclusion and Priority Sector lending. Since the technology platform of these Banks is being created afresh, it is possible for the Cyber Crime Insurance industry to work in close alliance with the technology vendors, Information Security professionals and the user Banks and ensure that the systems are tweaked to improve the security levels to levels higher than at present.

We can therefore look for more interesting and exciting times ahead for the Banking industry in India.


Related Article:

Indian IT companies chase banking licence hopefuls

Earlier articles on New Banking License