As a person involved in information security area, and advising public on Cyber Crime issues, I often come across information about frauds in Banks. One such recent incident has triggered a huge concern in me that we may be in for a major bank collapse due to inadequate security systems in the Bank and inadequate supervision from the Reserve Bank of India.

Being an ex-Banker myself, I am fully aware of how a Run on a Bank may get triggered leading to failures. One such trigger is the lack of customer’s trust in the Banking system created by repetitive frauds that occur frequently. I am now sensing one such shock about to unfold in a major Bank in India.

The sad part of the observation is that the reason for the imminent collapse is “Technology” which is actually a potential driver for growth when harnessed properly. Technology when introduced without appropriate “Security” erodes the fundamental building block of the Banking system namely the “Trust”.

Today, how many of us can touch our heart and say that “our money in the bank is safe”?. It was interesting to observe that in the recent workshop on “Impact of ITA 2008 on Bankers” conducted at Bangalore, most of the speakers (who were obviously security experts) said that they never use Internet Banking because they donot trust the security in the system.

Unfortunately, we are today living in a world where merely avoiding Internet banking, we cannot be completely away from the risks of associated with insecure Banking. For every security aware bank customer who avoids Internet Banking, there are hundred more customers who use Internet Banking. If 10 of those 100 fall into a fraud trap, then they will sweep away the rest of us as the Bank itself hurtles towards failure.

Why is that I am speaking of these threats? It is because I recently came across a Phishing incident in a bank which was much more than a usual phishing transaction.

The customer in this case was  one of those who is not using the facility for third party transfers and uses the facility to only view his accounts. Unfortunately he observed that in a series of midnight fund transfers followed by ATM withdrawals, more than Rs 5 lakhs was cleaned out of his account.

What was special about this fraud was that the fraud money was transferred to 15 different persons in different parts of the country involving some dozen branches of the same Bank. When it was further analysed, the accounts of 15 fraudsters contained evidence of several more such fraudulent transfers over an extended period of time.

In some accounts,  fraudulent credits were seen in  successive days. It was clear from the records that the Bank was a host for a crime syndicate which diligently distributed the fraud amount of several lakhs equitably to the members of the gang.

As usual the Bank did not take any remedial action on the reporting of the fraud and perhaps the gang enjoyed the patronage of the bank either by choice or by apathy. If  I could observe around 50 fraudulent entries in a space of three days transactions of just about 15 customers of a Bank, one can see what could be the extent of such frauds in the Bank.

It appears that one of the reasons that inflation is high and monetary flow is uncontrolled in the economy is that all over India the network of Cyber Crime syndicate has firmly established itself and a number of persons are using Bank frauds as their livelihood.

I can now state with conviction that if any body holds his account in this bank, he is probably placing his funds at the risk of being robbed any day.

I anticipate in due course that this news will percolate to the customers of the bank and the bank will see an erosion of its deposit base. Fortunately the bank is large enough to absorb some shocks but I am afraid that the problem may be too much even for the large Bank if corrective steps are not initiated immediately.

While we can blame the Bank, its Information Security team and the CMD for pushing the bank to the brink of collapse, it is necessary to ask searching questions at the Reserve Bank of India and the Indian Bank’s Association as well as the Ministry of Finance about their failures in safeguarding the banking system in India.

Last but not the least, it is necessary to also question why the media is not able to recognize that the situation is grave enough to destabilize the Indian economy and there is a need to draw the attention of the authorities. I call the attention of responsible journalists to get in touch with me so that I can share more dark details about why I consider that the Indian Banking system is on the verge of collapsing.

Naavi of

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