ICICI Bank took a strict action against one of its dealers by sacking it for indulging into improper forward trades as it executed deals to favor four Kolkata-based corporates. According to this deal these companies might possibly buy or sell currency at exchange rates which were more attractive than what they would have been offered in the regular course of business.
Bank has reported the incident to the Reserve Bank of India, and will be filing a complaint this week with the Mumbai Police against the dealer and the corporates. According to sources the dealer took the advantage of a glitch in the bank's software which detects variation in pricing up to the second decimal point. However, further deals have been strike at extremely fine rates running up to four decimal points.
The employee had smacked deals by making certain that the corporates received favorable 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 pop up an alert message when these transactions were done as the first four digits the same. The deals were carried out in Japanese Yen, Euro and dollars. Moreover the dealer used his official prudence to improve the rack rates.
It is alleged that the dealer might have received a payment from the four unlisted corporates. Bank officials stated the fraud could not be computed as the impact was a reduction in notional profits on several forex deals over a period of time. The bank got suspicious that something is wrong therefore started investigation of the matter in December. The trader was suspended last week.
A senior bank official pointed out that bank got suspicious when it discovered that the dealer, who was a relationship manager for the global market division in Mumbai, was executing trades for a group of Kolkata corporates. Such transactions are not carried out unless the company concerned is very big. The official was moved from Kolkata last year. A bank official informed that the fraudulent trades could not be enumerated as the dealer had diverse his trades.
The official further informed, “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”. The official told that it is not possible to do deals which are out of sync with the market as the software would have picked it up immediately.
The bank believes 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 is in his mother's account,” said the official.
Agreeing the fine margins in currency trading, a Euro 10-m transaction possibly would have generated improper gains of Rs 2.5 lakh for the dealer. It means the gains would be higher in the case of forward deals on the pound and lower in case of dollar.
After the fraud, the bank has tightened its internal systems. It has also started random checks on all dealers. A few years ago, ICICI Bank was hit by a fraud in the reserves. At that time, two currency traders of the bank had built up high points in Euro, betting on its rise. As the Euro slipped against the dollar, the traders bought more and resulted in fabricated, reverse deals to hide the excess trading. The irresponsible trading desecrated not only the dealers' trading limits, but also moved the bank’s up “overnight position” in foreign exchange beyond the level allowed by the Reserve Bank of India (RBI).
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