| Photo credit: RAJESH N
Tamil Nadu Commercial Bank, an established mid-sized private bank that went public a year ago, is working hard to change its image and perception among its peers. Its balance sheet, as of June 30, 2023, was around Rs 58,000 crore, and it was in the news recently for “erroneous” deposits.
A few days ago, a taxi driver in Chennai was shocked when he received a text message from his bank saying that Rs 9,000 crore had been deposited into his account. After transferring Rs 21,000 to a friend, he was left with just Rs 105 in his account and could do more after receiving the message.
According to reports, the bank reversed the erroneous deposit within 30 minutes and a compromise was reached with the taxi driver. While some of us, myself included, may wonder why such a jackpot wouldn’t be coming to us, if you look at this event from the perspective of a regulator and/or a depositor, it’s anything but interesting — —It’s scary.
For a bank of TMB’s size, Rs 9,000 crore represents more than 15% of its balance sheet. In Q1FY24, the bank’s liquid assets or cash equivalents were a little over Rs 3,200 crore.
What if the taxi driver is unwilling to agree to a compromise easily, or withdraws several crores of rupees from the bank before the credit is withdrawn? According to the bank, a mismatch in account numbers triggered the erroneous deposit. According to the bank’s official statement on the matter, “When a file is processed in the NACH application, the amount field is prefixed with a single digit (9) and the file is uploaded to CBS.” NACH (National Automated Clearing House) is the bank’s Payment instruments for electronic funds transfers between. As details of the nature of the funds transfer are unclear, TMB should be given the benefit of the doubt and credit for reversing the transaction within 30 minutes. Tracking these transactions and correcting them can be a daunting task.
However, what is disturbing is that huge sums of up to Rs 9,000 crore can be wired without adequate layers of checks. This is a massive deal not just for TMB but for any bank. NACH has been around for more than seven years, while CBS or the core banking system has been around much longer, and TMB is older than both NACH and CBS. But do its risk management practices, controls and systems reflect its more than 100 years of heritage?
A few months ago, the TMB headquarters was raided by the Income Tax department. The use of electronic transfers has become such a trend today that walking into a branch to send large amounts of money has become a thing of the past. The TMB mishap is a wake-up call for regulators to understand the origins of “erroneous” deposits. As customers, we also need to understand how these electronic transfers occur. Better safe than sorry!