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How to be vigilant about financial issues

Aghila Sasidharan and Sobhith Mathew Jose | Tuesday, 3 March 2020


Prevention is better than cure, so there is a need to be vigilant about financial issues that are evolving within the economy. The scams such as PNB, Satyam and Sharadha chit funds warn the investors in India to be vigilant. Future is not secured until and unless we open the eyes to these issues that affect the economy.

It is said that finance is the lifeblood of business and all the issues related to finance will affect both individuals and the economy as a whole. Financial issues faced by the economy can be classified in to two periods -- pre-phase and post-phase. Pre-phase consists of period from 1990-2000 and post-phase consists of period ranging from 2001-2018.

The pre-phase India has witnessed many financial problems like hawala transactions, fake currency, using fictitious government securities and advancing loans without due diligence. The post-phase reality consists of financial problems like money laundering, tax evasion, cybercrime and terrorist financing. Among these issues, cybercrime is a major one.

Cybercrime involves fraud committed by using computers and network. The growth of online transactions has paved the way for increase in cyber frauds. Cyber predators target the banks as their major preys since they have more money than any other institutions.

Reserve Bank of India (RBI) reported as many as 16,468 financial cybercrimes related to banking in 2015- 2016. Reserve Bank Information Technology Private Limited was set up by RBI to deal with banking frauds.

KYC (Know Your Customer) is a process by which banks obtained information of customer in order to avoid misuse of banking service. Violation of KYC norms leads to penalties. It was found that 22 banks violated these KYC norms in 2012- 2013.

In addition to this, use of forged instrument i.e. whoever falsely makes bill of exchanges, promissory notes and other documents, are held punishable as it is a criminal offense.

Collusive fraud means two or more people joined as a group and doing some illegal activities like manipulation of accounts and expropriating wealth of the firm for their own benefits. Money laundering is the process of obtaining money from criminal activity like inflating bill of transactions, gambling and use of bitcoins. Demat account is another which means holding of securities in electronic form. Illegal transactions can be undertaken by opening fake accounts.

One can be vigilant about financial issues in many ways that include review of credit card and bank account statement, reconciling cash and passbook, postponing payment of purchase, securing cheque book, using strong password and checking credit reports.

The central bank should stand as a watchdog to protect and save investors' funds. Forensic accounting and forensic audit can be used as effective tools to prevent scams and manifested frauds.

Let us hope that government and other organisations will take necessary actions in order to curb financial problems and strengthen the financial eco-system.