In response to the rising incidents of mule accounts and fraudulent bank transfers, banks and major financial services entities are significantly strengthening their systems for employee background checks.
This move is driven by regulatory scrutiny and the need to prevent internal system abuses.
Banks Increased Due Diligence on Field Staff
According to industry insiders, banks are now conducting these due diligence checks on a regular basis on their field staff, branch-level employees, and agent networks, including direct sales agents, business correspondents, and collection and loan recovery agents.
The trend of bank employees being implicated in payment and account-level frauds has been observed globally.
While Indian banks are considered well-governed, the increasing regulatory pressure has led them to enhance these checks.
This is to ensure that their employees do not exploit internal systems.
Ajay Trehan, CEO of AuthBridge, noted that there is a growing concern around reputation loss. Fraud is increasingly becoming a part of boardroom conversations.
Banks are now viewing these checks not as a cost but as an essential part of doing business.
Advanced technology has made these verification exercises more cost-effective, allowing companies to undertake these checks more easily.
The cost of these checks has significantly reduced. Basic background verifications now cost around Rs 150, compared to the previous cost of Rs 2,000 or Rs 2,500.
Rise in Discrepancies in Banks
AuthBridge’s report revealed a 10.4% rise in discrepancies between details submitted by employees and the data unearthed by background verification firms.
This increase occurred in the banking and financial services space between 2021 and 2024.
This discrepancy was the highest in the telecommunications space at over 18%, while in information technology, it was around 10.2%.
The report also highlighted that higher pressure on bank employees contributed to employees submitting false credentials.
Additionally, a dynamic job market and massive growth in credit instruments exacerbated this issue.
This has resulted in increased discrepancies and the need for more stringent background checks.
Private banks, in particular, are experiencing around 30% churn among their field force, with many employees frequently changing companies.
This poses a risk as ex-employees might pose as current employees to unsuspecting customers, leading to fraud attacks.
Utilization of Advanced Technology
To combat these issues, banks are using advanced technology to detect fraud.
They are also leveraging the services of fintech startups to identify fraudulent activities before they become significant.
The Reserve Bank Innovation Hub (RBIH) has developed an AI-powered mule hunter model to help banks detect mule accounts.
While these measures are crucial for maintaining the integrity of banking systems, they also raise concerns about employee privacy and data access restrictions.
Banks must strike a balance between ensuring security and respecting the privacy of their employees.
Note: We are also on WhatsApp, LinkedIn, Google News, and YouTube, to get the latest news updates, Subscribe to our Channels. WhatsApp– Click Here, Google News– Click Here, YouTube – Click Here, and LinkedIn– Click Here.
