Official Had Struck Deals For 4 Kolkata Cos At Favourable Exchange Rates
ICICI Bank has sacked one of its dealers who had entered into improper forward trades by executing deals to favor four Kolkata-based corporates. These companies could buy or sell currency at exchange rates which were more attractive than what they would have been offered in the regular course of business.
The bank, which has reported the incident to the Reserve Bank of India, will file a complaint this week with the Mumbai Police against the dealer and the corporates. Sources said the dealer had taken advantage of a glitch in the bank's software which detects variation in pricing up to the second decimal point. However, forward deals are struck at extremely fine rates running up to four decimal points.
The employee had struck deals by ensuring that the corporates received favourable rates by tinkering with the last two digits in the forex rates, which is typically as 46.4534 or 28.6751. The software did not throw up an alert when these transactions happened since the first four digits were not changed. The deals were done in Japanese Yen, Euro and dollars. Over and above this, the dealer used his official discretion to improve the rack rates.
It is suspected that the dealer received a kickback from the four unlisted corporates. Bank officials said the fraud could not be quantified as the impact was a reduction in notional profits on several forex deals over a period of time. The bank began investigating the matter after it sensed the fraud in December. The trader was fired last week.
A senior bank official said the bank got suspicious when it spotted that the dealer, who was a relationship manager for the global market division in Mumbai, was carrying out trades for a bunch of Kolkata corporates. This never happens unless the company concerned is very big. The official was transferred from Kolkata last year. A bank official said that the fraudulent trades could not be quantified as the dealer had mixed his trades. “However, on the back of the trades which have gone through the system, we feel that it is only of a small amount. The fraud was detected immediately because the systems were in place,” said the official. The official added that it was not possible to do deals which were out of sync with the market as the software would have picked it up immediately.
The bank suspects that the four corporates were acting in concert. “While questioning, the dealer said he had taken a loan of Rs 10 lakh from two of these corporates and it was is in his mother's account,” said the official. Given the fine margins in currency trading, a Euro 10-m transaction could have generated improper gains of Rs 2.5 lakh for the dealer. It would be higher in the case of forward deals on the pound and lower in case of dollar.
Post-fraud, the bank has tightened its internal systems. It has also introduced random checks on all dealers. A few years ago, ICICI Bank was hit by a fraud in the treasury. At that point, two currency traders of the bank had built up long positions in Euro, betting on its rise. As the Euro slipped against the dollar, the traders bought more and effected fictitious, reverse deals to hide the excess trading. The reckless trading violated not only the dealers' trading limits, but also pushed up the bank's “overnight position” in foreign exchange beyond the level allowed by the Reserve Bank of India (RBI).
Source: ET, Mumbai
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