Two years of PNB scam, risks far from mitigated

• In February 2018, after one of the largest frauds in Indian banking was reported by a public sector bank, one of the systemic deficiency identified was the core lack of integration between banking platforms of banks and the SWIFT messaging system.
• This unanticipated operational risk caused a very large financial loss to the concerned bank but also had an impact on its reputation due to perceived governance lapses.
• The Reserve Bank of India swiftly came out with guidelines to plug the identified gap and mandated banks to implement these on utmost priority. Banks took the necessary steps and met the regulatory directive of integrating the two systems mentioned earlier in this note.
• Further, with multiple arrangements in place that differ across each correspondent bank, there is a possibility of operational lapses, given dependence on manual interventions as well as inaccurate confirmations thereby not addressing the risks satisfactorily even where such arrangement exist.