The media paid a lot of attention to the cases of Mehul Choksi and Nirav Modi siphoning off thousands of crores from public sector banks. The bankers placed the blame on the lack of integration of the SWIFT system of international money transfers with the rest of the banking system software, which made it possible to hide the fraudulent international transfers organised by a few conniving bank officials from the regular audit. Further, this happened despite the RBI’s instructions to integrate the system at the earliest while the banks dragged their feet.

At the same time, small frauds and harassments perpetrated on thousands of small depositors by banks do not come under media glare. Even the RBI remains a mute spectator. The following personal experiences would highlight the nature of fraud and harassment that ordinary depositors and customers suffer.

We had a fixed deposit (FD) with the public sector United Bank of India (UBI), Gariahat Branch, Kolkata, since July 2011. But, despite the mandate to deposit the quarterly interest into our savings bank account, no interest was credited to our account for nearly eight years, though the bank’s Annual Interest/TDS certificates issued to us regularly showed the amounts as paid to us. So, we had no reason to think otherwise.

The FD was automatically renewed at periodic intervals but the non-payment of interest for so many years was not detected by the routine audit until May 2019. If it were a simple mistake by an errant clerk, such a gross irregularity over such a long period would have been detected by regular bank audits. Further, if we had already closed our account at UBI, we would have lost the interest altogether without even noticing it. Also, if one such case of fraud can take place for eight years due to systemic lapse or malfeasance on the part of some bank employee, many such cases may also have happened, without the knowledge of the unsuspecting depositors. 

After the gross irregularity was detected in May 2019, the bank paid us the arrear interest along with simple interest on the arrear. We demanded cumulative FD interest for the period since the bank, by not paying us the interest for so long, has effectively made it a cumulative interest FD. The bank remained silent on our demand.

Even more disturbing is the role of the RBI. We filed a detailed complaint with the Kolkata Bank Ombudsman appointed by the RBI through an email to bokolkata@rbi.org.in on June 11, 2019 for redress of our grievances. There was no acknowledgement. So, we resent the email on June 17, requesting specifically for an acknowledgment. To our dismay, we have not received one at the time of this writing. If this is the state of the ombudsman and RBI’s role, then who
will protect the interests of small depositors?

Another source of harassment is the requirement of periodic updating of ‘Know Your Customer’ (KYC) details with the banks. Different banks have different deadlines. Most often, banks do not send any notice to depositors. In addition, even after the necessary documents (photo, PAN, Aadhaar, etc.,) are submitted, banks do not issue any receipt. Recently, I went to Bank of India, Rash Behari Avenue Branch, Kolkata, to withdraw some cash. The teller refused, on the ground that no KYC had been submitted since 2007. I had a noting with my own handwriting on the back of the passbook: “KYC with photo submitted on 13/06/13.”

The bank official admitted that in some cases, the relevant person may have accepted the documents without recording in the computer. So, I had to submit again all the documents before I could withdraw money from my bank account. Fortunately, it was not an emergency. Just think of the plight of a person who goes to withdraw cash from his bank account for some emergency like hospitalisation, only to find that he cannot withdraw money because his KYC records are not updated, due to no fault on his part.

I can understand the need for KYC when a person opens a bank account, to prevent benami transactions. But this insistence of the RBI that it must be periodically updated only results in harassment of genuine depositors. In advanced countries like the US, there is no such periodic KYC updating requirement. The RBI needs to rethink this mindless exercise. 

To be fair, I should also point out that the inefficiency arising from non-integration of all sub-systems exists in the private sector, too. For example, even after I have recharged my mobile account at Airtel, I continue to receive notices, sometimes twice a day, to my cellphone that outgoing call facility would be cut unless I recharged my account. The same thing happened after I submitted KYC documents for the supplementary credit card at Standard Chartered Bank, R B Avenue, Kolkata, and I had got a duly stamped receipt from them on March 1. Even now, after months have passed, I continue to receive SMS and email messages that I have not submitted the documents. This, despite my sending emails twice -- on March 6 and April 9 to the bank that I had submitted the documents. 

So, it seems that even after extensive computerisation, in many cases, uploading of information and documents is not done and the different sub-systems are not integrated so that the left hand, proverbially, does not know what the right hand is doing.

In addition, regulators like the RBI are pre-occupied with barking up the wrong tree — with exercises like periodic updating of KYC, which in no way stops the bank frauds but only increases the compliance workload for bank officials and causes harassment to millions of depositors, including senior citizens with ailments and impaired mobility.

(The writer is a former Professor of Economics, IIM, Calcutta)