CBI investigating role of banks in multi-crore foreign exchange losses to customers on derivative products sold by the banks

21 Feb 2009



Following an Orissa High Court order, the CBI has started
investigation into the role of banks in multi-crore foreign
 exchange losses suffered by customers, who bought derivative
 products sold by the banks. Sources said while CBI has already
 questioned the officials of a top public sector bank, it might
 call officials from other banks too for questioning.

The agency will conduct investigations into the dealings of 22 banks.

Meanwhile, sources said the Indian Banks’ Association (IBA) was
likely to file a petition with the Supreme Court for a stay on the CBI probe.

The high court directive in December was in response to a 

writ petition filed against the government by an individual alleging

that banks were selling products on the basis of a wrong forecast 

hat the rupee will strengthen against the dollar. Both CBI and the 

Enforcement Directorate (ED) submitted their preliminary reports last November.

Banks are alleged to have offered structures in violation of “extant” 

regulations, which resulted in increased risk and net receipt of premium. 

Besides, the lenders did not verify the underlying exposure, the 

Reserve bank of India (RBI) in its report to CBI had said.

The RBI report had pointed out that banks failed to 

carry out proper due diligence regarding user appropriateness 

and suitability of the product offered. Besides, the banks 

did not obtain written acknowledgement from the clients about

their understanding of the risk involved.

The booking of contract between banks and customers took 

place on the past performance basis beyond the 50 per cent 

eligibility limit and also without obtaining a certificate from 

a chartered accountant. 

“Even when the transactions were based on 

underlying exposure, the banks relied on photocopies of documents…

This led to misuse by clients who used photocopies of the same 

underlying to enter into different contracts with different banks, 

which resulted in manifold increase in their losses,” 

the summary of RBI report submitted by CBI said.

CBI contended during the high court proceedings that 

the derivative contract entered into by various banks might 

be looked into by RBI and ED on bank-to-bank basis and, 

if the exercise revealed commission of offense under the I

ndian Penal Code and the Prevention of Corruption Act,

then CBI may look into the case.

Though RBI in its report has maintained that 

“losses suffered by the customers may not represent

the gains made by the banks” and that the issues were not

“systemic”, it said that an inquiry by the inter-departmental group had 

“identified violations which were serious in nature and were being 

examined for further action against the banks concerned”.

Wipro not looking to file complain against CA employee who siphoned off around $4 million

 

Feb20,2010

Wipro, the information technology to soaps conglomerate, 

says it is unlikely, at least for now, to file a formal complaint 

against the employee who recently siphoned off 

around $4 million (around Rs 18 crore) from the 

company’s bank account by accessing a colleague’s password.

Instead, it says it is satisfied with the progress it has made by
resorting to ‘dialogue’ with the employee as suggested by
an internal investigation team, aided by external counsels.
Based on the suggestions of the team, the company claims
it managed to recover almost half the siphoned money.

The company said the employee had been dismissed after
the fraud came to light but did not comment on his whereabouts.

“We have an investigation team which is looking at the matter.
Based on its recommendations, we have taken, and are taking
appropriate action, against the said employee,”
Rajendra K Shreemal, VP and Corporate Treasurer of Wipro told .
He added that the company had not filed a case either with the
local police or with the state police’s cybercrime cell against the
employee. The cybercrime cell confirmed this.

A qualified chartered accountant (CA), the ‘fraudster’ had

joined Wipro a little over three years ago, and this was his first job.

He was a junior employee in Wipro’s multimember ‘Controllership’
division in the finance department, which is responsible for maintaining
its financial books and has powers to authorise payments.

Though he reported to the chief controller, a person familiar with the
structure in Wipro’s financial department said “he was given
an independent role in the company’s treasury department” as
the company considered him “extremely intelligent” and “trustworthy”.

“However, history has taught us that ‘brainy and smart guys’
commit financial frauds and so has been the case with Wipro”.

Had Wipro done a proper background verification of the employee?
Shreemal says: “He was very good, with a good family background
and reference. This is just a one-off case, and this was clearly a use
of non-adhering to company policy.”

Experts say while the role of the audit committee that failed to get
a whiff of the happenings is under question, this has also raised
doubt about the internal audit system in the company.

A chartered accountant, who wished not to be named, said:
“Big organisations like Wipro have a strong internal audit
division which reports directly to the company chairman.

It falls within their ambit to check financial misappropriation
like this, since this might have happened off the balance sheet
and hence which did not enter the audit.”

Meanwhile, Wipro replaced all employees in the affected
division, which is also normally due at some stage.
The leadership of the controllership division was also changed.

Setting up of Cash Processing Centres – Recommendation of HLG

 
RBI/2009-10/320
DCM(Plg)No. G-18 /10.01.03/2009-10
February 19, 2010
The Chairman and Managing Director / Chief Executive Officer
All Scheduled Commercial Banks
Dear Sir
Setting up of Cash Processing Centres – Recommendation of HLG
We invite your attention to issue of a directive DCM (NPD)No. 3158 /09.39.00(Policy)/2009-10 dated November 2009 (issued under cover of our letter DCM(NPD)No. 3161/09.39.00(Policy)/2009-10 also dated 19 November 2009 enjoining upon the banks to necessarily check/process the notes in the denomination of Rs. 100 and above through Machines for fitness and authenticity, confirming to Standards prescribed by the Reserve Bank from time to time, before their issue through ATM/over counters. The instructions as above were issued by us pursuant to the recommendations of the High Level Group constituted under DG(UT) to look into various currency management practices in vogue.
2.  The Group, inter alia, has also recommended setting up of Cash Processing Centres (CPCs) at various key locations with enhanced processing and storage capacities to tap advantages arising out of economies of scale, minimize overnight cash risks at bank branches and to benefit from sophisticated logistics techniques.
3. Since banks may find it difficult to install/maintain machines at all their branches dealing with notes of high denomination, it has been decided  to accept the Group’s recommendations with respect to CPC and encourage the banks to set up state of the art Cash Processing Centres (CPCs) with substantial processing and storage capacities. This would further RBI’s objective of the Clean Note Policy.
4.  Banks may consider any of the following three types of Cash Processing Centres (CPCs):

1. A CPC established at an existing currency chest branch in the same location.
2. A CPC attached to an existing/new currency chest branch in different location.
3. A stand alone CPC that provides only fitness sorting and authentication services (i.e. they shall collect mixed notes from the bank branches in the morning and would return the same, after processing/authentication checking/sorting, in the evening as unfit notes, fit/issueable notes (ATM Fit/Counter Fit and suspect notes).

5.  To make the CPCs viable and also to take advantage of capacity built up, the CPCs may also serve the branches of other banks which may require its services and charge from them a reasonable fee for the services rendered at mutually agreed rates. The stand alone CPCs could also render services to others such as merchant establishments, petrol pumps, etc. handling large volumes of cash against payment of fees.
6.  Machines to be installed at CPC shall confirm to “Note Authentication and Fitness Sorting Standards” prescribed by RBI (DCM).
7.  CPC shall be subject to inspection by RBI at any time.
8.  Please acknowledge receipt.
Yours faithfully
(R. Gandhi)
Chief General Manager

Interest Rates on Export Credit in Foreign Currency

RBI/2009-10/321
DBOD.DIR.(Exp).No. 76/04.02.001/2009-10
February 19, 2010
All Scheduled Commercial Banks
Dear Sir/Madam,
Interest Rates on Export Credit in Foreign Currency
Please refer to our circular DBOD.DIR.(Exp).No.107/04.02.001/2008-09 dated February 5, 2009 as also paragraph 7 of Master Circular on Rupee / Foreign Currency Export Credit dated July 1, 2009 relating to export credit in foreign currency.
2. It has been decided, in consultation with the Government of India, to reduce the ceiling rate on export credit in foreign currency by banks to LIBOR plus 200 basis points from the present ceiling rate of LIBOR plus 350 basis points with immediate effect, subject to the express condition that the banks will not levy any other charges viz. service charge, management charge etc except for recovery towards out of pocket expenses incurred.  Similar changes may be effected in interest rates in cases where EURO LIBOR/EURIBOR has been used as the benchmark.  The rates of interest applicable have been incorporated in the Annex to the DBOD.DIR.(Exp).No.75/04.02.001/2009-10 dated February 19, 2010 enclosed to this circular.
3. The revision in the rates of interest would be applicable only to fresh advances.
4. Further, in modification of the instructions contained at para 5.1.3(iii)a of the above mentioned Master Circular dated July 1, 2009, the ceiling interest rate on the lines of credit with overseas banks has also been reduced from six months LIBOR/EURO LIBOR/EURIBOR plus 150 basis points to six months LIBOR/ EURO LIBOR/EURIBOR plus 100 basis points with immediate effect.
Yours faithfully,
(P.Vijaya Bhaskar)
Chief General Manager-in-Charge

Payment of Interest on Savings Bank Account on Daily Product Basis

Feb-20th-2010 RBI/2009-10/322
DBOD. No. Dir. BC 77/13.03.00/2009-10
 February 19, 2010
All Scheduled Commercial Banks
(Excluding RRBs)
Dear Sir
Payment of Interest on Savings Bank Account on Daily Product Basis
Please refer to our circular DBOD. No. Dir. BC.128/13.03.00/2008-09 dated April 24, 2009 advising banks that in view of the present satisfactory level of computerisation in commercial bank branches, it is proposed that payment of interest on savings bank accounts by scheduled commercial banks would be made on a daily product basis with effect from April 1, 2010. Further, banks were advised that in order to ensure a smooth transition, they may work out the modalities in this regard.
2. We advise that payment of interest on savings bank accounts may be made by banks on a daily product basis with effect from  April 1, 2010.
Yours faithfully
(P. Vijaya Bhaskar)
Chief General Manager-in-Charge

HDFC Bank opens 4,000th ATM

The country's second largest private sector lender, 

HDFC Bank, said it has opened its 4,000th ATM 

in the country at Mangalore in Karnataka.

 

Sun, Feb 21 05:09 PM

With the introduction of 'Faster ATMs' an HDFC
Bank customer can at any time of the day now withdraw
cash at any HDFC Bank ATM in 40 per cent less time,
it said in a statement.

This is the bank's 8th ATM in the city and 1,165th in
South, the Bank said.
 
"It is a matter of great satisfaction for us that we
have 4,000 such ATMs in service and will continue
to expand in future," Country Head-Retail Liabilities,
Marketing & Direct Banking Channels Rahul Bhagat said.

Tax refund scam: IT saves Rs 8 cr

 

Mumbai,

Sun, Feb 21 01:30 PM

The Income Tax department has managed

to prevent at least Rs 8 crore from getting into the hands

of those involved in a tax refund fraud. The department has

identified and frozen some suspect bank accounts from 

which money was likely to be withdrawn. 

 

The scamsters had transferred tax refunds into more

than 20 different bank accounts.

They used 30 to 40 banking channels [transferring money from 

one account to another before withdrawing it] so that they 

could avoid getting caught. However, a month after the fraud 

was noticed and 10 days after the Central Bureau of Investigation

(CBI) registered a first information report (FIR), the culprits are

yet to be caught. Chief Commissioner of Income Tax, 

Mumbai, R. K. Singh confirmed that the department has 

lodged an FIR but refused to comment further. 

The fraud, which took place between December 14 and 20, 

was discovered on January 12.

 

The culprits had processed over 150 returns

and claimed the refund. While many returns were

in the name of poor people, who do not even fall in tax

bracket, some were in the names of persons who do

not exist. The returns were processed using the department's 

electronic clearing system, which could be accessed only

through passwords of assessing officers, one of which the

culprits managed to access. 

Despite identifying a chartered accountant (CA),

a vice-president of a co-operative bank and an advocate

among the accused, the I-T and CBI have been unable to

recover the sum-which amounts to at least Rs 6 crore-that the 

culprits had withdrawn. 

The I-T had also raided the CA,

while the other two were not traceable.

After the incident, the department issued safety guidelines
to its staff. Employees were asked to change their passwords
every week and to deter from sharing them with anybody.

No pre-Budget rally this time: Analysts

New Delhi, Feb 21 (PTI)

Will there be a pre-budget rally this time around 

or not is the question that is haunting the traders 

as the markets enter the Budget week. However,

analysts are of the opinion that a rally seems unlikely

in the current scenario as the market is under selling 

pressure and volatility will persist in the market

in the run-up to the Budget.

 

"The expectations from the Budget are relatively
low this time around. The market is expecting a
Budget that is growth oriented and adheres to fiscal targets.

It may not become euphoric this time before the Budget,
" Kotak Securities managing director Narayan SA said.
Benchmark indices have dropped around 12 per cent
since the highs it touched last October.

Analysts believe the Budget will no longer impact
the market in a major way as global cues will also
determine the movement. "Global events are
dictating movement more than local expectations.

There are not much positives expected out of the
Budget and hence we do not expect it to rally,"
HDFC Securities head-private broking and wealth
management Vinod Sharma said.

Over the last 18 years, the markets have fallen 2-7 per cent
in the run-up (five trading sessions before the Budget)
on nine out of 20 occasions.

"The markets would be volatile and no big rally
is expected before the Budget as investors are
aware of the position of the Finance Minister
and do not have big expectations,"
Unicon Financial chief executive Gajendra Nagpal said. .

RBI Blocks PayPal Withdrawls to Indian Banks

 

If you have not hear about the PayPal earlier,
it is the online payment system from eBay.

It is one of the best product for sending the
payments to any part of the world.

As of now there is no real competition to PayPal
and they are enjoying the most of the market share.

There may be future challenges from Google Check Out,
which is new product launched by google.


One of the main advantage in PayPal is you can
withdraw the balance amount
to your local bank account.

For example if you are doing any freelance work
and receiving the payment of $4000 through paypal
and the payment is sent from USA.

You can easily add your bank account in your PayPal account and withdraw the money.
It will be converted into local currency. This process takes only few days.

Most of the freelancers and small companies in India
depends on this services to receive the money from
outside India.

The shock came when last month (28th) RBI told PayPal
to stop the payments to Indian banks because they don’t have
the proper authorization to make fund transfer.

Then onwards PayPal has stoped all the payment to
banks and waiting to resolve the issue with RBI.

  It will be a big problem for the small companies using
PayPal as the payment method. PayPal also provides another
option for issuing the cheque. But, this process takes very long time.

What is Pay Pal ?- Part-001

 

 by krishnas

Introduction

In this article I will be explaining about the one of the popular
online payment website PayPal. If you have not hear about
the service, please read this article. If you are already familiar
with the product, this article will not be useful for you.

It is good to learn about the various online payment options
available to save your time. In this blog,
I am regularly writing about the wide range of products.
In this post, I would like to explain about the paypal.
If you have any doubts, please post it in the comments section. 

What is PayPal?

PayPal  is online payment gateway for making the payment
to any of your friends or purchasing the goods.
Then you may be asking how this differs from the banks?.

The simple answer is, PayPal serves as the mediator
for transferring the funds across the world. It allows you
to maintain the account and check your balance
( It is like virtual online bank account) .
You can send money and withdraw money at any time.

The main advantage in this service is, it makes very
simple to send money to anywhere in the world.
You just need to have a paypal account.

Anyone can create the paypal account with out bank accounts
and credit cards. You need credit cards or bank account only
you want to withdraw money to your account.

This product is offered by eBay company.
They are the leading online shopping portal across the world.

Summary

I hope this article provided very basic idea on
what is Paypal service.

Tomorrow I will write about how you can create
the account with paypal and what is the process
to withdraw money to your bank account. 

 There are many other salient features in the paypal,
I will write it in the next posts.
Thank you for reading this article!!.

This article is published only for academic interest

and to know What is Pay Pal?

please visit our article:

http://bankfinanceindia.blogspot.com/2010/02/rbi-halts-ops-of-remittance-portal-pay.html

CBI constable sentenced to one-year in jail

 

Mumbai, Feb. 19 -- 

The Special Central Bureau of Investigation (CBI)

court on Thursday sentenced a CBI constable to 

one-year in jail on charges of taking out a file from the CBI 

custody without any official permission. 

The court also imposed a fine of Rs 2,000 on him. 

According to CBI, in June 2003, they found that a 

file related to a bank fraud was missing from the office.

The cupboard, where the file was kept was opened with

a duplicate key. After investigation they found that it 

was their own constable Sunil Tibe who, using a duplicate key, 

opened the cupboard and had taken the file out. 

Initially CBI had alleged that he might have taken money

from the accused in the fraud case to give out the details

of the case. CBI later charged him with criminal misconduct

and for dishonestly breaking open receptacle containing property.

He was charge sheeted in 2004.

The motive of the accused could not be established.

UBI IPO price band is likely to be Rs.60-66

 

by Harish Dhawan on Thu, 02/18/2010 -



UBI IPO price band is likely to be Rs.60-66Public
sector bank United Bank of India (UBI) clarified on
Thursday that the price band for its upcoming public
offer would have a price band of Rs. 60-66.

The bank is expecting to raise Rs. 350 crore from the
issue that would end up diluting government's stake
to 84.2 per cent from existing 100 per cent.

Scheduled to open on February 23 and close on
February 25, the issue offers five crore equity
shares for taking. Retail investors would be
issued at five per cent discount on the issue price.

However, as per the S C Gupta, CMD, United Bank
of India, the price band of Rs. 60-66 is just
tentative and the bank would announce its final
price band just two prior to the issue opens.

While five per cent of the issue is reserved for
the bank's employees, of the balance 60 per cent
is offered to qualified institutional buyers with
a five per cent reservation for the mutual funds.

 Retailinvestors have 28.5 per cent of the issue
reserved for them.

UnitedBank of India, apart from Punjab and Sind Bank,
was the only other bank in the country where the
government had 100 per cent ownership.

Union Minister Anand Sharma has high hopes from the budget

 

Union budget is just a week away from being announced
and Anand Sharma, the Union Commerce and industry
minister on Friday was quit positive on the viewthat the  
stimulus package would not be withdrawn from the labour
intensive sectors which include the engineering goods, leather
and garments.

These sectors are already finding it tough to
limp their way back to recovery, any step
of withdrawing any benefit would be really


He very smartly turned the question, when
asked that had he informed the finance minister
Mr. Pranab Mukherjee.

He said that the FM is well informed and
sensitive enough to not take any such step
and knows the challenges of Indian trade.

Earlier there were indications that the fiscal
stimulus would be partially withdrawn from
the point of view of excise duty and service taxes.

Mr. Sharma also added that hopes were high in the
ministry regarding the consolidation of India's exports
and was hopeful of bridging the gap between the
global trade in goods and services.

When asked whether China's currency policy
was hurting India's reports, he said that China
has assured that this issue will get proper attention
and will be looked after.

Can the heir of a deceased payee of a dishonoured cheque file a criminal complaint?

 



 The Bombay High Court does not think so.


The Aurangabad bench of the high court earlier
this week quashed the process issued by a
metropolitan magistrate’s court in Ahmednagar in August 2008
against one Vishnupat Khaire.

On September 28, 2007, Khaire had issued a cheque of
Rs 3 lakh in favour of one Balbir Madhan.

A few days earlier, on September 5, Madhan died in an accident.
Kailash said when he deposited the cheque on

February 5, 2008, it was dishonoured.


The cheque bounced for insufficient funds.
Kailash then lodged a complaint after Khaire
failed to pay the amount despite a legal notice being sent.


Khaire approached the HC and argued, through is
advocate that no court could take cognisance of
any offence punishable under Section 138 of the  
Negotiable Instruments act, except if the payee
of the cheque or its holder makes a written complaint.

Khaire argued that Kailash was neither.
However, Kailash’s advocate argued that after
Balbir’s death, Kailash had ‘stepped into his father’s
shoes as payee’ and was entitled to file a complaint.

The court observed that Kailash is not the payee
of the cheque nor was the financial instrument
endorsed in his name by Balbir.

The court said Kailash could have filed a civil
suit on the basis of the dishonoured cheque for
recovery of amount.

“By the demise of payee itself, it cannot
be said that any of the heirs get right to file
a complaint as if he automatically enters into
the shoes of the deceased payee,” observed
Justice P. R. Borkar.

The court said only someone authorised
by a valid legal document granted by the
court could call upon the drawer of a cheque
to pay the amount of dishonoured cheque.

“He will then be entitled to file complaint as
he would be really entering into the shoes
of the deceased payee,” Justice Borkar said
while quashing the magistrate’s order.