Guard Against Bank Employee Fraud: Key Protection Measures
In a landmark ruling in April 2024, the Supreme Court of India underscored a bank's accountability for its employees' actions
Recent incidents have highlighted a concerning trend where bank branch managers and their associates have been implicated in misappropriating depositors' funds entrusted to the bank. These cases often involve fraudulent activities perpetrated by bank employees, raising significant concerns about the safety of investments, particularly in leading Indian banks.
In a landmark ruling in April 2024, the Supreme Court of India underscored a bank's accountability for its employees' actions. This decision came in response to a case where an employee unlawfully withheld funds meant for deposit into a customer's Fixed Deposit account.
Suma R V, Partner at King Stubb & Kasiva, emphasised that the Apex Court's decision holds banks liable for such employee frauds, providing customers with a legal recourse for loss or damage. However, the bank's liability may be limited if customers share sensitive information like passwords with employees.
Per the RBI Master Direction on Fraud – Classification and Reporting, banks are obligated to report customer complaints regarding employee fraud to authorities like the CBI or police. Customers also have the option to pursue legal action through Consumer Commissions and criminal proceedings can be initiated against both the bank and its employees.
Experts stress the need for thorough investigations into cases of employee fraud, given their unusual nature. Sheetal R Bhardwaj, an executive board member of ACFCS in Dubai and Head of Compliance at a UAE-based bank, highlighted measures like employee punishment and collaboration with law enforcement to address such fraud.
Customer reimbursement depends on investigation findings and bank policies, with some banks compensating promptly while others await police inquiries. Banks typically safeguard against employee fraud through insurance measures.
To safeguard against such frauds, Bhardwaj advises customers to document interactions with bank employees, monitor transactions vigilantly, cease communication with suspicious employees, and regularly change login details.
By documenting odd actions, monitoring transactions, and enhancing security measures, customers can mitigate the risks associated with employee fraud in banking institutions.
