How Bank Of Baroda's App Scam Is Rocking The Very Foundations Of India's Banking Sector

India's seventh largest bank (as per market cap), Bank of Baroda, was banned from onboarding new customers on its mobile app by the RBI. While the issue seemed to be restricted to that bank only, it seems that this is just the tip of the iceberg. The actual scam could be of a huge scale.

Why Was Bank Of Baroda Banned?

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RBI has banned Bank of Baroda from onboarding any new customers due to what the regulator said were certain material supervisory concerns observed in the manner of taking on customers by the bank so far.

The central bank¡¯s action came almost three months after a news network exposed how the bank linked bank accounts to unregistered mobile numbers and signed up these numbers for the application. Even though customers were deregistered after they signed up, it led to an artificial increase in the number of downloads and sign-ups.

The RBI said that any further onboarding of customers on the ¡®bob World¡¯ application will be subject to rectification of the deficiencies and strengthening of the related processes by the bank to the satisfaction of the regulator.

How Has Bank Of Baroda Reacted?

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Bank of Baroda has recently suspended some employees and initiated a probe to fix accountability after the RBI banned the bank from onboarding new customers onto its ¡®bob World¡¯ mobile application last week.

¡°Some employees have been suspended in Bhopal, Baroda, and Rajasthan, and a probe has been initiated. So far, the suspensions are only in the smaller towns outside the metros,¡± said a person familiar with the process, as per an ET report.

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What Does The Banking Industry Need?

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The RBI governor, Shaktikanta Das, has been urged by a civil society platform to implement an information security (IS) audit mechanism for banks that have mobile banking apps and has asked banks to detect any malpractices, such as the substitution of biometric details of customers at the time of account opening.

¡°We now intent to convey our concerns about the recent expose that has vindicated an apprehension that the drive Initiated by various banks to onboard customers on mobile banking app through business correspondents as well as employee; has resulted in customers losing substantial amounts through frauds perpetrated by fraudsters. We strongly feel by such drives Initiated by various banks to achieve impossible targets set for the branch level functionaries on any banking channel activity viz. selling of third party products, opening of current accounts, onboarding customers for mobile banking app et al, often leads to Irregular and unlawful acts perpetrated by branchlevel functionaries for which the authorities turn a blind eye to as long as the numbers are achieved. It is Indeed a matter of consternation that the banks are breaching basic fulugary responsibilties are supposed to uphold all the time,¡± said Bank Bachao Desh Bachao Manch in its October 14, 2023 letter to the RBI, as per the ET report.

According to Bachao Desh Bachao Manch¡¯s social media account, X, it is a civil society platform to mobilise public opinion against bank privatisation and also to take up social causes.

¡°We feel that the number of such irregularities that have surfaced in the BoB World app scam is just the tip of the iceberg. The actual scam could be a humongous scale,¡± it stated.

In its letter, Bank Bachao Desh Bachao Manch suggested the following, which, if adopted peremptorily, could arrest such frauds to a large extent.

-Appointment of independent information security auditors to undertake in-depth investigations in all banks using mobile banking apps in order to unearth facts so that the entire sector becomes attentive to the safety of clients' savings.

-Instructions will be issued to all banks not to establish such targets on branch functionaries, which could lead to the adoption of unethical practices in order to please the authorities.

-All banks have been instructed to investigate the operations of business correspondents in order to uncover any malpractices, such as the substitution of biometric details of consumers when creating accounts.

-Surveillance of customer service kiosks.

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