Citi's $504-mn blunder a big lesson for banks

Mumbai: The recent Citi Bank episode has taught a big lesson to the country's banking industry. While bankers warn to have a dual-check system in place so as to avoid such embarrassing conditions, the IT experts opine that cash security and data security must be kept safe. On the other hand, a Citi Bank spokesperson said that they will continue to pursue recovery effort by way of appeal to get its wrongly transacted money back. A 30-year-old legal precedent that essentially says 'finders keepers' in certain financial transactions will now make it hard for Citigroup to get the transaction overturned.

The bank has said it will appeal the court ruling - issued earlier this week by a federal judge in New York - that rejected its attempt to recover $504 million it mistakenly sent to asset managers for Revlon lenders last summer. Indian IT company, Wipro, is the technology solution provider to Citi Bank.

Citigroup had made the transfer to fulfil its role as Revlon's 'loan agent'. However, instead of the interest amount that was due, the whole loan amount got transferred as a result of a back-office blunder. The recipients of this largesse include Brigade Capital Management, HPS Investment Partners and Symphony Asset Management. And they refused to return the 'windfall'. The US court also backed them.

Talking to Bizz Buzz, Dr Deepa Kotwani Ghosh, CEO, EmpMonitor, said, "In today's world, cash security and data security is a big deal for any company. Keeping it safe and secure should be the top most priority. Employers need to make sure that employees and visitors need to do at least the basic checkups. Even the usage of complex passwords should be made compulsory by employers so as to keep any sort of theft and hacking at par."

Employee social monitoring, app and website blocking, setting firewall should be encouraged and this can be done by implementing any finest employee-monitoring and tracking tool. And Yes! Prevention is always the best way to keep your company's data and cash safe. Employers must train, guide their employees. After all, warned employees will always be attentive, she added.

M Narendra, former Chairman and Managing Director of Indian Overseas Bank, said," You can't blindly depend on technology as you are also supposed to use your mind while making such transactions."

In a financial institution when we are dealing with such financial transactions, it has got a lot of financial implications attached to it too involving multiple countries, he said.

Once you exercise your option, Narendra said, it goes out of your control and you can't get your money back, until your counterpart cooperates with you. Hence, please ensure that dual check is there on such occasions in which your higher official verifies the transaction, he said.

The incident took place in August last year. What happened that the cosmetic manufacturing firm Revlon had taken financial term loan with repayment tenure of seven years from some of the lenders in the year 2016.

When contacted, Citi spokesman, Danielle Romero-Apsilos said, "We strongly disagree with this decision and intend to appeal. We believe we are entitled to the funds and will continue to pursue a complete recovery of them."

Citi Bank is the loan agent for the company. The bank was supposed to pay around Rs 60 crore in the form of interest amount to the lenders. By mistake the bank transferred the entire principal amount amounting to around Rs 7,000 crore. When the bank confessed its mistake, then some of the account holders returned the money to the bank amounting to around Rs 3,000 crore. However, 10 other account holders said 'no' to the bank. The amount involved was Rs 3,700 crore.