CASE STUDY

INDIA'S FIRST ATM CARD FRAUD

The Chennai City Police have busted an international gang involved in
cyber crime, with the arrest of Deepak Prem Manwani (22), who was
caught red-handed while breaking into an ATM in the city in June last, it
is reliably learnt. The dimensions of the city cops' achievement can be
gauged from the fact that they have netted a man who is on the wanted
list of the for mid able FBI of the United States. At the time of his
detention, he had with him Rs 7.5 lakh knocked off from two ATMs in T
Nagar and Abiramipuram in the city. Prior to that, he had walked away
with Rs 50,000 from an ATM in Mumbai. While investigating Manwani's
case, the police stumbled upon a cyber crime involving scores of persons
across the globe. Manwani is an MBA drop-out from a Pune college and
served as a marketing executive in a Chennai-based firm for some time.
Interestingly, his audacious crime career started in an Internet cafe.
While browsing the Net one day, he got attracted to a site which offered
him assistance in breaking into the ATMs. His contacts, sitting
somewhere in Europe, were ready to give him credit card numbers of a
few American banks for $5 per card. The site also offered the magnetic
codes of those cards, but charged $200 per code. The operators of the
site had devised a fascinating idea to get the personal identification
number (PIN) of the card users. They floated a new site which resembled
that of a reputed telecom companies. That company has millions of
subscribers. The fake site offered the visitors to return$11.75 per head
which, the site promoters said, had been collected in excess by mistake
from them. Believing that it was a genuine offer from the telecom
company in question, several lakh
subscribers logged on to the site to get back that little money, but in the
process parted with their PINs. Armed with all requisite data to hack the
bank ATMs, the gang started its systematic looting. Apparently,
Manwani and many others of his ilk entered into a deal with the gang
behind the site and could purchase any amount of data, of course on
certain terms, or simply enter into a deal on a booty-sharing basis.
Meanwhile, Manwani also managed to generate 30 plastic cards that

contained necessary data to enable him to break into ATMS. He was so

enterprising that he was able to sell away a few such cards to his contacts
in Mumbai. The police are on the lookout for those persons too. On
receipt of large-scale complaints from the billed credit card users and
banks in the United States, the FBI started an investigation into the
affair and also alerted the CBI in New Delhi that the international gang
had developed some links in India too. Manwani has since been enlarged
on bail after interrogation by the CBI. But the city police believe that this
is the beginning of the end of a major cyber crime.

CASE STUDY

Rs 400-cr fraud at Citibank branch

A banking fraud which could run into a whopping Rs 400 crore has been
unearthed at leading multinational lender Citibank's Gurgaon (Haryana)
branch.
Gurgaon Police Commissioner SS Deswal said an FIR under sections of
cheating and forgery against a bank employee and three others has been
lodged and 18 accounts having close to Rs 4 crore have been frozen.
Sources said funds amounting to Rs 400 crore of 20 high networth
customers has been siphoned off.
The fraud is said to be a handiwork of Shivraj Puri, the employee who is
alleged to have sold investment products to high networth clients, claiming
that they would generate unusually high returns.
It is also alleged that Puri, who is named in the FIR, showed a forged
notification of market regulator Securities and Exchange Board of India for
obtaining funds from customers.
He is also accused of claiming that these products were authorised by the
bank's investment product committee.
The bank in a statement said, "We immediately reported the matter to all
the relevant regulatory and law enforcement authorities. Identified
suspicious transactions have been isolated and we are providing full
assistance to the authorities in their investigations."
Sources said Puri allegedly sought deposits from high networth customers

in lucrative schemes but transferred the funds to some fictitious accounts.

Funds amounting to Rs 400 crore belonging to about 20 customers were
transferred to such accounts, they said.
"We recently initiated an investigation into a certain set of suspicious
transactions based on documents forged by an employee involving a few
accounts in our Gurgaon branch," the bank statement said.
The bank said the issue did not impact other accounts or transactions or
customers of the bank.
The fraud comes to light a month after the Central Bureau of Investigation
(CBI) uncovered bribery-for-loan racket leading to arrest of many senior
officials of the banks and financial institutions.
The bank officials allegedly colluded with the firm to sanction large scale
corporate loans, overriding mandatory conditions for such approvals along
with other irregularities.
CBI has arrested CEO of LIC Housing Finance and seven others senior
bankers including Naresh K Chopra, Secretary (Investment), LIC, R N
Tayal, General Manager of Bank of India and Maninder Singh Johar,
Director (Chartered Accountant) of Central Bank of India.

CASE STUDY

Co-operative Bank Scams in India

Case Details:
Case Code
Case Length
Period
Pub. Date
Teaching Note
Organization

Industry
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Price:
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FINC021
9 Pages
2001 - 2002
2002
Available
Madhavapura Mercantile
Cooperative Bank (MMCB),
Cooperative Urban Bank
(KCUB)
: Financial Services
: India

For delivery in electronic format: Rs. 300;

For delivery through courier (within India): Rs. 300
+ Rs. 25 for Shipping & Handling Charges
Themes
Ethics in Business

Abstract:
The case, "Cooperative Bank Scams in India" gives an insight into the
various scams and malpractices in cooperative banks in India and
their implications on the Indian financial sector. The case begins with
a history of cooperative banking in India. It briefly describes the
structure of cooperative banks and their characteristics. The case then
discusses in brief the scams that surfaced in four cooperative banks,
viz., Madhavpura Mercantile Cooperative Bank (MMCB), Krushi
Cooperative Urban Bank (KCUB), Charminar Cooperative Urban

Bank (CCUB) and Nagpur District Central Cooperative Bank

(NDCCB) in 2001-02. The case also discusses how to revive the
functioning of cooperative banks in India.

Issues:
Scams in the Urban cooperative banks

Contents:

Introduction
Cooperative Banks - A Profile
Background Note
Scams in Cooperative Banks
Reviving Cooperative Banking

Keywords:
Cooperative Bank Scams in India, scams, malpractices,
cooperative banks, India, Indian financial sector, structure,
cooperative banks, four cooperative banks, Madhavpura
Mercantile Cooperative Bank, MMCB, Krushi Cooperative
Urban Bank, KCUB, Charminar Cooperative Urban Bank,
CCUB, Nagpur District Central Cooperative Bank, NDCCB,
2001-02

"The objective of co-operative banking is to create enduring

and sustainable financial institutions which remain
responsive to the credit needs of weaker sections."
- RBI Report on Trend and Progress of Banking in India,
2000-01.
"There has been a mushrooming of co-operative banks in the
country. Low barriers to entry spurred individuals with vested
interests to start such banking ventures with a view to milk the
depositors funds."
- Suresh Hemmady, chairman of the Shamrao Vithal
Cooperative Bank.
"They are non cooperatives under the camouflage of
cooperatives."
- Rama Reddy, President of Hyderabad based Cooperative
Development Foundation.

Introduction
Cooperative banks were established in India to facilitate rural credit, and to
cater to the needs of small farmers and businessmen.
They were popular with middle and lower income groups because of the high
interest rates they offered as compared to commercial banks.
However, with the passage of time, most cooperative banks lost their purpose.
Excessive state control and politicisation further led to their deterioration. By
the 1990s, none of the public or private sector banks were willing to deal with
cooperative banks and thus even otherwise healthy cooperative banks were
facing a tough time.
In 2001-2002, many cooperative banks were rocked by scams that exposed the
malpractices in these banks.
Finance | Case Study in Management, Operations, Strategies, Finance, Case
Studies

Many of these banks did not adhere to the prudential norms prescribed by the
Reserve bank of India (RBI).
The Madhavapura Mercantile Cooperative Bank (MMCB) had invested a huge
amount in the equity market which was almost equal to its deposit base, thus,
violating the RBI norms relating to exposure to the equity market. Another
bank, the Krushi Cooperative Urban Bank (KCUB) had issued loans and
advances amounting to Rs. 530 million as against its deposit base of Rs. 350
million. Not only that, most of its loans had not been secured. Similarly, the
Charminar Cooperative Urban Bank (CCUB) faced liquidity problems due to
indiscriminate lending to big borrowers against worthless land. More recently
the Nagpur District Central Cooperative Bank (NDCCB) was involved in
fraudulent dealings in government securities through brokers.

Cooperative Banks - A Profile

In the early 20th century, the availability of credit in India, more
particularly in rural areas was non existent. There was no organized
institutional credit for agricultural and related activities.
People in the rural areas largely depended on money lenders who lent
money at very high rates of interest. Thus, there was need to create an
institution which would cater to the needs of ordinary people and was
based on the principles of cooperative organisation and management.
In 1904, the first legislation on co-operatives was passed. In 1914, the
Maclagen committee suggested a three tier structure for cooperative
banking i.e Primary Agricultural Credit Societies at the grass root
level, Central Cooperative Banks at the district level and State
Cooperative Banks at the State or apex level. Cooperative banks were
expected to serve as substitutes for money lenders, and provide both
short-term and long-term institutional credit at reasonable rates of
interest.

Finance | Case Study in Management, Operations, Strategies, Finance,

Case Studies
Cooperative banks operate both in urban and non-urban centers (Refer
Table I for characteristics of Cooperative banks).
The urban areas are served by the Primary (Urban) Cooperative
Banks (PCBs/UCBs) whereas the rural areas are largely served by two
sets of institutions, the PACSs and LDBs, dispensing short-term and
long-term credit, respectively. UCBs have a three-tier structure with
the State Cooperative Banks (SCBs) at the apex level, the District
Central Cooperative Banks (CCBs) at the intermediate level and the
Primary Agricultural Credit Societies (PACS) at the grass root level
(Refer Table II). Under the long-term credit structure, State
Cooperative Agriculture and Rural Development Banks (SCARDBs)
are at the apex level and the Primary Cooperative Agriculture and
Rural Development Banks (PCARDBs) are at the base level...