As banks opened up additional counters on Thursday to cope with the rush of people exchanging Rs 500 and Rs 1000 notes that have been declared invalid, the Reserve Bank is learnt to have raised a red flag and cautioned state-owned banks on the dangers of the newly opened accounts under the NDA government’s flagship Pradhan Mantri Jan Dhan Yojana (PMJDY) being vulnerable to money muling.
The Centre has decided to cancel the legal tender character of the high denomination banknotes of Rs.500 and Rs.1000 denominations issued by RBI till the midnight of November 8, 2016. Banks were shut on Wednesday to allow stocking of smaller currency notes and the public has been allowed to deposit any amount of the invalid currency in their bank account starting Thursday till December 30.
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While banks have been specifically instructed to report any unusual transaction to Financial Intelligence Unit and tax authorities for scrutiny, the RBI’s caution regarding the zero-balance PMJDY accounts, especially idle ones, comes close on the heels of a recent incident involving the accidental discovery of a daily wager’s idle bank account being used by fraudsters to receive and transfer funds to the tune of Rs 1 crore, without the account holder’s knowledge. What was particularly worrying is that the incident came to light only when the income tax authorities served a notice to the Punjab-based daily wager, who was subsequently found to be clueless about the transaction.
“A specific advisory advocating caution on the possible misuse of the large number of Jan Dhan accounts, especially idle ones, has been spelt out,” a banking sector official said. With the Punjab daily wager’s fraud as a case in point, lenders had already been apprised about the failure of bank’s systems and incremental processes to monitor such vulnerable accounts and they had been instructed to remain vigilant about kite flyers and Ponzi scheme operators who use mule accounts to swindle public money. Money mule is a term used to describe victims who are duped by fraudsters into laundering illegal money via their bank accounts. Fraudsters typically contact customers through emails, chat rooms, job websites or blogs, and convince them to receive money into their bank accounts in exchange for a commission.
The potentially looming danger now, according to the RBI, is the increasing number of idle Jan Dhan accounts. Banks have been told to improve internal systems to monitor transactions being undertaken in accounts, especially idle ones. While traditionally, bank alerts and exceptional transaction reporting mechanisms have been rudimentary, the regulator has sought a beefing up of vigilance. Any failure to guard against misuse of customers’ accounts could result in banks incurring supervisory sanctions and enforcement actions. Experts have pointed to the easing of KYC norms for PMJDY, making the scheme vulnerable to frauds. The best way to counter this, experts say, is by linking them with Aadhaar — something that banks have been asked to look at.
On August 15, 2014, Prime Minister Narendra Modi had announced his mission to make banking facilities available to all households in India. As of end-May 2016, 22.29 crore accounts had been opened, with the total deposits amounting to Rs 39,251 crore.
Banks have been told to set up a Security Operations Centre and beef up the role of the chief information security officer. Besides, the need to leverage the CISO forum under RBI’s Institute for Development and Research in Banking Technology for exchanging information among banks and generating quick responses to cyber incidents has been stipulated by the central bank.
In recent months, with the SMAC format (social, mobile, analytics and cloud) driving innovation in the banking sector, the security imperative is even more compelling with regard to preventing data theft and checking financial fraud.