Bank of Baroda Employees disbursed Fake Gold Loans to meet Target

According to sources, employees at several Bank of Baroda (BoB) branches in India engaged in fraudulent activities by disbursing fake gold loans. These actions violated regulatory guidelines and posed a potential risk to the funds of depositors.

Loans given without collateral and credited back as normal repayments

The loans were granted without any collateral and were later credited back to the bank as if they were regular loan repayments. This unusual method allowed the employees to meet their targets, without actually issuing or receiving any real loans.

Breaches primarily occurred at branches with gold loan shoppes

The majority of these breaches occurred at branches that housed gold loan shoppes, which are private enclosures designed to serve gold loan customers. Bank of Baroda had 1,238 such enclosures, according to a statement released by the bank in August of the previous year.

Scheme executed with the help of friendly customers

Certain Bank of Baroda employees in southern India collaborated with cooperative customers to execute this scheme. The branch would approve a gold loan and transfer the funds to the customer’s account, even without any collateral. Eventually, the money would be credited back to the bank as a regular loan repayment. To ensure that the customer did not utilize the funds, a lien would be created against the amount, effectively blocking it. This strategy allowed the employees to meet their targets without actually issuing or repaying any legitimate loans.

Processing fees paid by the branch, interest payments avoided through back-dating

To handle the loan’s processing fees and interest, the employees cited above revealed that the branch would pay the fees from its internal expense account. Interest payments were avoided by back-dating the loan repayments. By back-dating the repayments, the system would falsely record that the loan had been repaid on the same day it was disbursed, effectively reversing any interest charges.

Anomalies detected during internal audit

Bank of Baroda became aware of these fraudulent activities during the year. An internal bank document from December reported that an offsite surveillance conducted by its audit division identified anomalies in certain gold loan accounts between April and September. Specifically, the document revealed discrepancies in loans that were opened and closed within a three-month period.

Bank’s response and commitment to compliance

A spokesperson for Bank of Baroda stated that the bank regularly conducts internal audits across its various business verticals. The spokesperson acknowledged the presence of anomalies in a few gold loan accounts and emphasized that the bank promptly took corrective action to ensure compliance with established guidelines. The bank asserts that it has strong internal processes and control mechanisms in place and is dedicated to upholding the highest standards of compliance and governance.

Potential financial implications and the role of audits

Experts highlight that disbursing gold loans without collateral directly contradicts the fundamental principles of lending against collateral. If these loans were to default or if the gold ornaments used as collateral did not exist, the bank would face significant financial consequences, impacting both the bank and its customers. Surprise and regular audits act as a deterrent against potential violators, as they are aware that their actions are likely to be discovered.