BOB World: Is Intensifying Competition In Banking Sector The Reason For Bank Of Baroda's Employees Big Scam?

When the illegal curtains of PSU lender, Bank of Baroda's BoB World were unfolded, the fiasco did not just send shockwaves to the Indian banking industry but also came as a reality check that there was a need for improvement in corporate governance of big banks in the country too. Illegal onboarding of customers without their knowledge at the BoB World app was alarming as it jeopardized securities of thousands of bank accounts. But could intensifying competition in the sector be one of the reasons for such a case, and can we expect stringent moves from RBI in digital banking transactions going forward?

The BoB World scam came to light after RBI asked the bank to stop onboarding new customers on the popular mobile application with effect from October 8th. RBI's decision came when it noticed certain material supervisory concerns in the onboarding on BoB World.

But behind-the-scenes onboarding was first reported a few months ago by Al Jazeera who interviewed some employees of Bank of Baroda.

According to Al Jazeera's report, an employee of Bank of Baroda revealed that they would fetch out the list of bank accounts which were not linked with mobile numbers, and then the employees would link these accounts to any mobile numbers they could gather such as bank staffers, sanitation and security workers and their relatives. The goal of doing so was to generate the one-time password (OTP) which is required to join the application and sign up for these accounts. The next step by these employees was to deregister these customers from the app and reuse the same mobile numbers to repeat the process all over again.

The news channel even cited an email which pointed out the scale of impact on bank accounts. For instance, in the Bhopal zone, the news channel found out that close to 1,300 mobile numbers were tied to anywhere from 30 to 100 bank accounts, putting nearly 62,000 bank accounts at risk. This will be on average 47 bank accounts linked to a single mobile number.

In the aftermath, Bank of Baroda has fired dozens of employees. At the latest, the digital lending business head who was credited for building BoB World, Akhil Handa has also resigned with effect from October 31. However, Handa revealed that he was not terminated and said it was his personal decision to resign.

Explaining the reasons and the aftermath of the BoB World scam, Shreyansh Shah, Research Analyst, StoxBox said, "The primary reason for the Bank of Baroda (BoB) employees resorting to such fraudulent activity could be the intense competition in the banking industry to grow the deposits and loan book amidst the environment of NIM compression due to the interest rate scenario. The PSBs are also entering into this intense competition, which was earlier seen only in the private banks."

Shah also revealed that of late, we have seen that there has been a rising number of digital frauds involving banks in India.

What will be the next big step for digital banking after the BoB World scam? Shah said, "We believe that the Indian Central Bank will promptly develop regulations and guidelines to curb such digital fraud. Also, due to the severity of the situation that too coming from a PSB, the RBI would scrutinize major banks that have significantly increased their business through digitization in the last few years to assess the loopholes in the technology-driven industry."

For the Bank of Baroda, Shah said that they expect BoB will have to conduct a forensic investigation to identify the flaws in its operation so such incidents are prevented in the future.

Interestingly, Bank Of Baroda has recorded decline in various transactions related to BoB World during the September quarter of FY24. In Q2FY24, daily transactions on the BoB World app stood at 7.95 million, down from 8.1 million in Q1FY24. The percentage of the opening of fixed deposits and recurring deposits through this app declined to 35% in Q2FY24 from 43%.

Also, the percentage of billpay transactions stood at 77%, and the UPI handle generated through BoB World stood at 84% by the end of September 30, 2023. This was lower compared to 80% billpay transactions, and 87% UPI handle generation in Q1FY24. All, PPF account openings through BoB World dipped to 32% in Q2FY24 compared to 44% in Q1FY24.

However, the percentage of accessing digital passbooks stayed unchanged at 86% quarter-on-quarter, and the average engagement ratio also remained the same at 6. Notably, it was only the percentage of IMPS transactions that increased to 90% in Q2FY24 from 87% in Q1FY24.

Also, in the quarter, the bank posted a net profit of Rs 4,253 crore, rising by 28.4% from the profit of Rs 3,313 crore in the same quarter a year ago. While net interest income (NII) which is the difference between interest earned and expended, stood at Rs 10,831 crore, registering single-digit growth of 6.5% YoY.