Issued at least 3 warnings in 18 months about SWIFT-related fraud: RBI

RBI also announced the constitution of a high-level committee to look into the rising cases of fraud in the Indian banking system.

NEW DELHI: The Reserve Bank of India (RBI) has said it had warned banks of the potential that the SWIFT messaging system could be misused at least thrice in the last 18 months. The central bank also announced that it is setting up a high-level committee to study the prevention of fraud in the Indian banking system, in light of the recent Rs 11,400 crore scandal involving Punjab National Bank (PNB) and diamantaire Nirav Modi.

In a statement on Tuesday, RBI said it had issued repeated warnings to banks on the possibility that the SWIFT system could be misused. "The risks arising from the potential malicious use of the SWIFT infrastructure, created by banks for their genuine business needs, has always been a component of their operational risk profile. RBI had, therefore, confidentially cautioned and alerted banks of such possible misuse, at least on three occasions since August 2016, advising them to implement the safeguards detailed in the RBI's communications, for pre-empting such occurrences," read the RBI statement.

"Banks have, however, been at varying levels in implementation of such measures," the statement added. It said the warnings had been made as part of its supervisory efforts to offset against operational risks.

The RBI also issued instructions to all banks to implement a slew of steps it has recommended to improve security of SWIFT transactions, and said it has now given them deadlines to complete this in light of the PNB fraud.

The RBI had earlier said it has not instructed PNB to meet its commitments to other banks, and blamed the scandal on 'delinquent behaviour' of the banks employees and 'failure of internal controls'.

The central bank also announced the setting up of an expert committee to be headed by former RBI board member YH Malegam to look into the factors contributing to the rising cases of systemic fraud in the Indian banking system. The committee has been tasked with making recommendations aimed at preventing fraud. Other members of the committee would include RBI board member Bharat Doshi, former Canara Bank CMD S Raman,  ReBIT CEO Nandkumar Saravade, and RBI executive director AK Misra.