A person who sells vegetables on his cart in North Delhi has been made director of a company. Last year, he became the director of a company overnight without even knowing it and his remuneration was Rs 10,000 per month. He is not the only one who became a pseudo entrepreneur but there are 59 like him, living in slums, like rickshaw pullers, vendors, drivers, household workers, who were approached by black money hoarders and made the Directors of 59 companies in the Bank of Baroda Rs 6,172 crore money laundering scandal.
The CBI and ED are probing the said biggest trade based money laundering. This is now referred to as banking-hawala scandal. CBI is also surprised that low-income citizens were used by the exporters/importers to send their ill-gotten money to the foreign countries. It all started in May last year.
The businessmen behind the transfers to Hong Kong and Dubai, after conniving with the Bank of Baroda officials approached these slum-dwellers with a lucrative offer. The drivers, vendors etc were asked to just provide their voter ID cards for which they were offered Rs 10-15,000 per month. The amount was irresistible for people with poor background and they had to just give their document.
On the basis of voter IDs, their PAN cards were prepared by the accused persons and then current accounts were opened in the BoB branch in the name of fake companies. Some names in these companies - Directors and partners - were almost same and companies were shown registered at fake addresses. Similarly, shell companies were opened in Hong Kong through their contacts. Once the accounts were opened, the process of transferring money through dummy companies belonging to exporters/importers began.
As part of the modus operandi, the exporters, in order to get extra money from the duty drawback, overvalued the exports. In a release last month, ED stated that "for such overvaluation, such exporters require foreign exchange in the foreign country equivalent to overvaluatio. Similarly, the importers, who are importing the items where the custom duty is high, undervalue the imports in order to save the custom duty, and they require availability of foreign exchange in the foreign country to pay the difference. The imports of dry fruits, pulses and rice were shown to be done in these 59 companies having accounts in BoB but no imports had been done actually.
It is found that Rs 6,172 crore was deposited in these 59 accounts between August 2014 till August this year mostly in the form of forex remittances and transfer through other banks. The suspects used another set of persons in the transfers. It is said that 'entry operators' found in Old Delhi area, mostly Chandni Chowk, were approached by exporters/importers to transfer cash in these 59 current accounts.
Here I would like to say that process of account opening as narrated above is not surprising and new in public sector banks. It happens in almost all public sector banks . Officers working in these banks are given target for opening accounts and clever officers apply their mind to open either fictitious accounts or without carrying out due diligence, they open the account of any Tom, dick and Herry whoever comes to bank to open account.
Bank Officers are more concerned about their career , their closeness with their bosses, their promotion, their greed for gifts which usually distributed by clever businessmen to get their work done hassle free and in brief for their personal wealth and position.
Bank Officers are least bothered about the quality of work they do. Window dressing has become the established culture at all levels and in all PSU banks. Bankers are well versed in inflating deposit figure at the end of quarter by window dressing , they know the art of inflating credit portfolio without actual lending, they are expert in booking even recovery in bad accounts without actual receipts of cash from defaulters and similarly they are expert in opening accounts without completing set norms.
Even ministers, RBI and other agencies want achievement of target and growth in figure by hook or by crook. None of them focus on quality , all focus on quantity. Value of Non Performing Assets in PSU banks is many more times what comes in public domain and what is declared in their annual balance sheet. Even Auditors, inspectors, RBI officials , Chartered Accountants and all concerned authorities are bought or forced to sign certificates of good health . It is open secret and everyone from top to bottom knows it but can do nothing. This is well established culture.
It is now Bank of Baroda which is exposed, many more banks were exposed in past by Cobra post and all bank will be exposed in future too. Since none of actual culprits have been punished in the past and since only such manipulators are elevated to higher post, the culture of manipulations have got strong roots at all levels and it is not easy to change it .
If bank management and Government of India really want real reform , they will have to focus on quality and change the habit of forcing targets on juniors. They will have to punish guilty offices, guilty politicians, guilty promoters of the companies, guilty CAs, guilty persons who provide fake certificates , thing will start moving in right direction. They will have to ensure hundred percent compliance of rules and guidelines as it is done in developed countries like USA and UK. Country cannot book real growth only by fraudulently inflating figures
Once they start focusing on quality, real performers will come on the forefront and they will get elevation instead of flatterers and manipulators as hitherto. And sooner , the number of real performers will start increasing and there is no doubt that volume and quantity will also get boost up as it is happening in private banks.
If there is a will, there is a way.
Read full news in Times of India
http://timesofindia.indiatimes.com/business/india-business/Rickshaw-pullers-hawkers-made-directors-in-Bank-of-Baroda-scam/articleshow/49887027.cms
My Observation on Bank of Baroda Forex Scam: ------
Bank of Baroda is in news for last few days due to alleged forex scam valued Rs.6000 crore. It is reported that thousands of transactions took place from one branch of BOB and huge fund amounting to about Rs.6000 crore were remitted to Hong Kong in the name of various companies as advance payment for so called import. Bank is charged with allowing money laundering .Though huge cash and inter bank transactions have taken place through hundreds of fake or genuine companies within a period of one year , it appears to me, bank is not likely to suffer any substantial financial loss.
The said Bank simply in greed of business allowed transaction without making adequate due diligence. Bank officials working in such branches normally become victim of precious gifts distributed by such ill-motivated rich customers. Ill-motivated business men know the art of motivating bank officials and politicians. There is no doubt in it that such a large value of transaction must awaken the sleep of top officials of the bank also and for such negligence some of top officials may also be punished.
But the real question is why and how RBI, Government of India and Custom department could not smell the stink when such huge volume of foreign exchange was going out of the country through banking channels. Why RBI failed to notice huge cash and inter bank transfer of funds taking place from one bank to other. It is reported that only 10 percent of entire transaction was in cash and rest was through fund transfers from 32 other banks. None of 32 banks could notice the irregularity going on in banks. It shows how the system in bank has rotten and how false picture is depicted by top officials to please their bosses in RBI and GOI.
There is a system of reporting of suspected transaction to head office of the bank and then to RBI along with a report on all cash transactions exceeding Rs.10.00 lac in a day. Why so many banks failed to notice the ongoing fraud. After all, it is precious Indian money going abroad without any valid reason. If transactions in hundreds of crores go unnoticed in banks, how banks can curb lacs of such irregular transactions taking place in each bank each day. It is to be assessed whether banks are making mockery of entire KC norms and anti-money laundering Act. or is it due to political pressure.
It is also true that the matter though belated ,came to light only when some officials of the same bank reported to RBI for investigation .
Keeping apart the said alleged scam of BOB, I would like to know what has happened to another Rs.350 crore bill discounting fraud detected in the same Bank of Baroda a fortnight ago which may cause a loss of Rs350 crore and more to bank.
Bills worth Rs 350 crore were discounted but the payment has not come. The concerned person has been reportedly suspended and an inquiry has been initiated .
Bill discounting is a transaction under which a firm sells its accounts receivable at a discounted value to banks or a factoring company. Selling of account receivable at a discounted value helps a company to meet its working capital requirement without resorting to borrowing. In such transactions, a fraud can take place when there is mala fide intention of buyer and seller, and the transaction is not honoured.
I would like to know how such huge value bills are discounted and allowed to remain unpaid and unnoticed for such a long period. Banking system faced a similar problem a couple of years back when a large diamond exporter went on exporting to his sister concerns and relatives in Dubai and the (export) bills were discounted by banks in India. No money came to the banks, whose exposure to this company was pegged at ₹4,000 crore.
Some questions in this regard need to be answered.
- How one after other bills are discounted even after occurrence of default in payment?
- How head office of the bank remained silent on frequent defaults and how auditors failed to notice the irregularities perpetuated in the branch?
- Why the report pertaining to bill discounting were only filed and not properly monitored.?
- Was any credit report and due diligence report was carried out and kept in record on buyers and seller of products for which bill was raised and discounted by the bank?
- Why branch officials were not aware of real nature and volume of business of the company who pretended to buy goods and who appeared to be seller?
- Why and how branch officials got promotion out of turn and was there an nexus of such branch officials with top officials of the bank?
- Why one after other fraud takes place and RBI or the concerned bank always fail to nip in the bud and fail to punish the erring officials and if punished , why they do not publish the name of such fraudulent offices to alert others?
- RBI use to carry out audit from time to time. Statutory Auditors use to certify closing statement of branches every quarter or half yearly or annually depending on volume of business of a branch. And these auditors are mandatorily required to make their comment on high value transaction, on bill discounted, on overdue bills, on temporary faculties or overdraft allowed by Branch Head . How they failed to notice such irregularities in the branch and if they mentioned irregularities in their audit report, why audit department failed to take cognizance of it and why did they fail to take corrective step?
- Is it not a fact that these auditors are normally influenced by Branch Head and ill-motivated customers who please them by giving costly gifts and dinners?
- Concurrent audit use to take place in high value branches. Why did these auditors not mention the irregularities or fail to notice such high value irregularities?
- Internal audit use to take place in each bank. Does these auditors also work usually under influence of some rich clients or the other or that of branch officials ?
- And so on-------------These basic facts needs to be ascertained to know the root cause of the rotten system . It is not enough to issue guidelines ever now and then and then go for deep slumber.
In some cases, there are genuine reasons like product defect and financial crunch but in recent past many frauds have also surfaced leading to rise in bad loans of the bank.
Here it is important to point out that he government had appointed Sri S S Mundra, as Chairman and Managing director of Bank of Baroda (BoB), a deputy governor of the Reserve Bank of India (RBI) In August 2014. Mundra took charge as chairman and managing director of BoB in January 2013 said to be the second strongest bank . Prior to his elevation, he was the executive director of Union Bank of India. All so called strong banks in the eyes of RBI and GOI are getting exposed slowly and gradually and still regulators and GOI not appear to be that much serious as they should be in view of gigantic nature of bank fraud and bank credit and its growing volume and day by day increasing intensity.
It is also to be seen whether Mr. Mundra failed in his role as CMD of Bank of Baroda to inculcate good culture or he was promoter and initiator of bad culture of bill discounting in above alleged fraud or forex remittance scam exposed in last few days. Because such huge volume of transaction invariably occurs with concurrence of head of the bank and such huge valued transactions are invariably submitted to table of CMD in every bank.
If accusing finger goes towards Mr. Mundra also , then it should also be investigated who were Ministers who had recommended for elevation of Mr. Mundra from the post of ED Union Bank to CMD of BOB and then from CMD to Dy Governor of RBI.
Mundra has been preaching sermons after exposure of Rs.6000 crore forex scam. We should know his reality too. When he joined as CMD of BOB in the year 2013 he had indicated that its restructured loan book stood at Rs 22,617 crore for the year ended March 2013. And as long as he was CMD of the bank , NPA was not allowed to go up , may be , by using tool of restructuring and ever greening of bad advances. When he left BOB , NPA of the bank went up sharply.
In the first quarter ended June, BoB saw its asset quality worsening with GNPAs at 4.13 per cent as against 3.11 per cent a year ago. Net NPA level declined to 2.07 per cent from 1.58 per cent. Fresh slippages in the quarter stood at Rs 1,685 crore from Rs 1,881 crore a year ago. It restructured Rs 147 crore worth of accounts in the period.
As such reality of top officials has also to be peeped into. As long as top officials are ill-motivated in any bank, none of juniors will have the courage to dream of sticking rules and going against the will of Super Bosses.
Real diagnosis lies in striking at root cause of the sickness of the bank and not surgically removing a part of the body i,e, by making a few junior officers as scapegoat for each big scam and allowing top officers a safe exit or quick promotion despite their indirect involvement in each high value scam or high value NPA or high value write off.
In the first quarter ended June, BoB saw its asset quality worsening with GNPAs at 4.13 per cent as against 3.11 per cent a year ago. Net NPA level declined to 2.07 per cent from 1.58 per cent. Fresh slippages in the quarter stood at Rs 1,685 crore from Rs 1,881 crore a year ago. It restructured Rs 147 crore worth of accounts in the period.
As such reality of top officials has also to be peeped into. As long as top officials are ill-motivated in any bank, none of juniors will have the courage to dream of sticking rules and going against the will of Super Bosses.
Real diagnosis lies in striking at root cause of the sickness of the bank and not surgically removing a part of the body i,e, by making a few junior officers as scapegoat for each big scam and allowing top officers a safe exit or quick promotion despite their indirect involvement in each high value scam or high value NPA or high value write off.
Bank of Baroda Detects Rs 350 Crore Bill
Discounting Irregularity: Report-NDTV
06.10.2015
State-owned Bank of Baroda has detected Rs 350 crore bill discounting irregularity and initiated an investigation into it.
"Yes, bills worth Rs 350 crore were discounted but the payment has not come. The concerned person has been suspended," said a senior official of BoB.
Read Full News On Alleged Fraud of Rs.350 Crore in BOB
RBI to tighten bill discounting norms-Hindu Business Line
06.10.2015
With increasing cases of fraud coming to light, especially in the gems & jewellery and textiles sectors, the RBI is likely to tighten guidelines relating to bill discounting for banks.
The restrictions could include setting tighter limits on clients’ counterparty exposure and prescribing third-party verification of clients’ buyers.
The trigger for revisiting the bill discounting guidelines could be the ₹350-crore fraud reportedly committed by one of Bank of Baroda’s clients in Ahmedabad.
Based on references about bill discounting frauds from banks, the CBI, over the past few years, has registered cases against senior public sector bank (PSB) officials and other individuals for entering into criminal conspiracy and fraudulently discounting false and forged bills drawn on ‘buyers’ based in the country or overseas.
A senior PSB official said the bills need to be properly linked to the chain of inventory and invoices; otherwise it is a case of “accommodating” the customer.
“Mostly what happens is that the customer’s client (buyer) on whom the bills are drawn may be his own sister/related concern, but not on record. So, the customer keeps ‘supplying’ goods and getting the bills discounted. Possibly, no goods are supplied.
“That is why the banks normally do not undertake this (bill discounting) transaction unless it is a reputed client. If somebody needs to be accommodated, this is one of the ways in which the customer influences the bank to accommodate him,” explained the banker.
The official further observed that the banking system faced a similar problem a couple of years back when a large diamond exporter went on exporting to his sister concerns and relatives in Dubai and the (export) bills were discounted by banks in India.
No money came to the banks, whose exposure to this company was pegged at ₹4,000 crore.
Contingent liability
When it comes to accounting, bill discounting is a contingent liability for the customer.
Normally what happens is that when a banker does ratio analysis, the contingent liability is not really taken as a part of the customer’s finance.
“So, this is also one way they try to fudge and present better accounts and better financials for the company.
"Sometimes a gullible bankers are taken for a ride,” said a PSB official, adding that though there are established norms for bill discounting, they are often given the go by.
Checks and counterchecks
Where bill discounting is done, checks and counterchecks are routinely made.
When a bank takes an exposure on a particular customer, who is supplying goods to 10-15 buyers, there is a prescription that the exposure to each buyer should not exceed a particular limit. Thus, certain risk management practices are in place.
The discounting facility should be given only to “good” customers and not just anybody, said the PSB official.
“Today, power has been delegated at the lower levels in banks. So, there are cases where they (officials) start accommodating the party…
“Once you are in the trap of the customer he exploits you. He will threaten not to pay unless discounted,” the banker said.
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