Context: Recently, the Reserve Bank of India (RBI) is in the process of putting together an exclusive wing for banking fraud oversight, which will have teams for meta-data processing and analysis, artificial intelligence analysis units, as well as pro-active risk assessment cell.
Background

• The RBI had been mulling ways to proactively detect such frauds after the loan fiasco at Punjab National Bank.
• The bank fraud to the tune of Rs 11,450 crore involving diamond merchant Nirav Modi. It came to light that the company, in connivance with retired employees of PNB, got at least 150 LoUs, allowing Nirav Modi Group to defraud the bank and many other banks who gave loans to him.
• As part of that plan, the banking regulator in 2019 had moved to create a separate cadre of its own employees who would work in regulation and oversight sections.
• However, the working conditions were very strict and anyone opting for that cadre would not be allowed to leave for three years. To overcome this problem, the RBI sought to create a fraud oversight wing.

Key Findings

• The new team is likely to be formed as soon as within the next month, and could have a capacity of up to 600 officers.
• These new teams will also be given training in the latest technologies, so that they can also prevent another Yes Bank kind of event.
• The banking regulator is also planning to bring in experts from the private sector working in all these domains to train the new members in the fraud oversight wing. 
• These training sessions are will be repeated every year in the initial years.
• Conditions: The working conditions, however, were very strict and anyone opting for that cadre would not be allowed to leave for three years. 

Yes Bank Case
Three reason behind its Fail

• Firstly, it has often yielded to directives in the past from the national government — regardless of party in power — thus compromising its independent decision-making and operational authority.
• Secondly, RBI has failed to institute stringent control mechanisms to effectively prevent the occurrence (recurrence) of (a) serious bank frauds and (b) significant levels of non-performing assets (NPAs) in both the public as well as the private sector.
• Thirdly – and the cause of the second deficiency — there has been a sharp decline in governance standards and oversight mechanisms covering commercial banks, which RBI is expected to follow consistently, covering all facets – not just policing — of this vital sector of the national economy.

Steps Taken

• The RBI, on March 5, superseded the board of Yes Bank and placed it under immediate moratorium.
• Withdrawals from the bank were capped at Rs 50,000.
• RBI appointed the former State Bank of India (SBI) Chief Financial Officer as the bank’s administrator.

Reconstruction Plan

• RBI had suggested the possibility of SBI, India’s largest bank, acquiring a 49% equity stake.
• SBI later committed to invest up to Rs 7,250 crore in Yes bank.

Even though there were representatives of RBI on the Yes Bank board, it was difficult for them to flag the risk for they had never done a credit risk assessment task in their career so far.