As banks get tech savvy, risks remain

KATHMANDU, DEC 20 -

Technology is changing the face of the banking in the country, but risks of technology-enabled financial crimes are also on the rise.

Since 2009, when Nepal Development Bank was declared crisis-ridden and successive incidents of banking frauds with the involvement of bank officials, much attention was being paid on controlling such frauds.

But over the last two years, technology-driven frauds—particularly those related to debit cards with the involvement of bank officials, and incidents of phishing—have also emerged as major threats in the domestic banking industry.

In December 2011, an ATM fraud at Nabil Bank with the involvement of its former employee at its card division, Sabin Rimal, and his brother Ritesh Rimal was exposed.

A similar incident took place at Himalayan Bank in September 2012 with the involvement of its employee at card division, Anil Bhakta Suwal.

Several attempts of ATM frauds have been made by people outside the banks . In January, a group of individuals made an attempt to withdraw money from a Himalayan Bank ATM.

Since then, Himalayan has adopted chip-based ATM cards, replacing magnetic ones, while a few other banks have also followed suit.

In a recent incident, the Central Investigation Bureau (CIB) of Police arrested three individuals for withdrawing money from other people’s account by using fake debit cards.

When it comes to phishing, on March 18, 2013, the Metropolitan Police Range, Hanumandhoka arrested Naresh Lamgade of Anarmani, Jhapa, for allegedly hacking into the accounts of Nabil Bank customers by creating a fake website of the bank.

He sent email messages to Nabil’s e-banking customers, asking them to change their security codes by providing links for the same.

Whoever clicked on the link was diverted to a Nabil website, and revealed their login details to Lamgade.

Using the details obtained, Lamgade withdrew money from the accounts of the clients.

A similar incident took place at Nepal Investment Bank a year ago, in which Rs 1.2 million of an active depositor was stolen.

Police said technology-enable banking frauds are on the rise. CIB chief, Deputy Inspector General Prakash Aryal, said ATM frauds were taking place with the involvement of international rackets. “They create cards, purchase data online and implant the data in the cards and use them to withdraw money,” said Aryal.

According to the CIB, they are investigating two cases of ATM fraud. But Aryal said several cases might have been registered with district-level police posts.

The incidents of frauds have mounted pressure on banks to strengthen their security system. And, the banks are taking measures to address safety concerns.

A majority of banks have now made it mandatory for depositors to change debit card PIN number before first use.

The banks said such a move was taken to ensure bank staff knowledgeable about the PIN numbers would not be able to misuse the information like what happened in the case of frauds at Nabil and Himalyan.

The banks have also introduced a system of one-time password for e-banking and mobile banking transactions. Under this system — e-banking users are sent a single-use password on their mobile phones to close a transaction.

The Nepal Rastra Bank (NRB) has also taken a number of measures to prevent technology-enabled frauds.

It has increased the capital charge on banks and financial institutions for operational risks to 5 percent from 2 percent.

“We have also made it mandatory for our supervisors to look after information technology while supervising the banks and financial institutions (BFIs),” said NRB Deputy Governor Gopal Prasad Kafle.

The central bank has also issued a directive on information technology to the BFIs.

Source: The Kathmandu Post