When I was posted as the Head of a branch in Mumbai, I was asked by my Zonal Head to investigate an alleged case of fraud to the tune of Rs 55 million, an amount that called for handing over the case to CBI. So conclusive facts had to be gathered before that.
It was a big branch, both in size and volume, headed by an officer senior to me. In fact, I had learnt a few threads of banking from him. During his tenure, the loan was disbursed, but it was sanctioned by his predecessor, who was also senior to me. It was a difficult situation for me, but the job had to be done, though their annoyance was quite palpable in their words and reactions.
In brief, a big loan was sanctioned at the behest of an officer, Pranay, considered to be very efficient, diligent and confident. He was one of the confidants of both Heads of the branch. They blindly believed what he said and deed.
The biggest blunder was that both Heads didn’t bother to check the collateral security being offered by the borrower. The property which was said to be 6500 sq.ft. turned out to be a godown of hardly 500 sq.ft. Had they visited the place themselves, they could have detected this ploy to defraud bank.
It was a clear case of divergence of funds. Due to non payment of interest and instalments, the account turned bad (NPA), and then the skeletons started tumbling out of the closet. The case was declared as fraud and reported to RBI, and the matter was finally handed over to CBI.
All officers who were involved with the loan, right from the Branch Heads to supporting officers and auditor were booked. It was a long-drawn-out case. During CBI’s investigation, their houses were also raided, but nothing incriminatory was found.
Interestingly, in the meantime, the auditor was transferred from Mumbai to Gujarat, and during the raid at his house, Gujarat being a state where prohibition was clamped, two bottles of liquor were confiscated, and a different case altogether was framed against him.
Finally, malafides were not proved during the investigation, except in case of Pranay, who got dismissed and finally landed in jail. But all were punished under the service regulations for negligence and dereliction of duty.
The case was not unique. Most of cheating and fraud cases in banks are based on this premise. Trust or confidence is paramount in banking and finance. When it gets weakened, something untoward is bound to happen, and the same is also true in a case of overconfidence.
When branch operations were computerised, I had seen several cases, where a smart and computer savvy guy, in the name of helping old folks, played nasty with their confidence in him. Suspicion may be a bad thing, but in banking, one needs to suspect, before believing.