Frauds Current Affairs - 2019
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Ministry of Electronics and Information Technology (MeitY) is testing credit rating model, a new system that will assist banks in assessing credit risk and probability of fraud using big data analysis. The system is expected to help banks, particularly rural and cooperative banks, tackle the issue of rising nonperforming assets (NPAs). Currently, rural and cooperative banks depend on judgement of bank manager, resulting in high NPAs and frauds. A credit rating model can assist banks to quantify risks under the big data context.
The MeitY sponsored project includes Reserve Bank of India (RBI), Bangalore-based IT firm Processware System and two cooperative banks as partners. The project is aimed at helping banks quantify risks associated with retail loans such as personal loans, gold loans and vehicle loans.
Under this project, a statistical and machine learning algorithmic model has been developed to predict probability of default with aim to reduce NPAs. It will also help in predicting different types of frauds in banking sector based on RBI guidelines. Besides, a web-enabled software is also being tested to assist banks to easily adopt models for credit rating, NPAs and fraud. Validation of these models has been done using data from several banks.
Reserve Bank of India (RBI) has constituted an expert committee to look into the entire gamut of issues relating to classification of bad loans, effectiveness of audits and rising incidents of frauds. The committee will be headed by Y H Malegam, a former member of Central Board of Directors of RBI.
Terms of References
The committ will look into reasons for high divergence observed in asset classification and provisioning by banks vis-à-vis RBI’s supervisory assessment. It will suggest steps needed to prevent it, factors leading to increasing incidence of frauds in banks and measures (including IT interventions) needed to curb and prevent it. It will also look into role and effectiveness of various types of audits conducted in banks in mitigating the incidence of such divergence and frauds.
The committee was set up in wake up of Rs 11,400 crore SWIFT (Society for Worldwide Interbank Financial Telecommunication)-related fraud in Punjab National Bank (PNB) and RBI’s drive of strengthening supervisory framework in the country to avoid frauds. Government also had asked RBI whether it has at any stage detected fraud, involving letter of undertaking (LoUs) issued to foreign branches of Indian banks on behalf of companies promoted by Nirav Modi and Mehul Choksi.