Banking Issues

Frequent transfer of funds devoid of genuine trade

Senior bankers know the issue of ‘kite flying’, a loose term referring to issue of cheques on sister concerns without any underlying trade transactions (similar to accommodation bills) and meeting the payment obligations by issuing another cheque on the same entity or using bills / LC limits without genuine movement of goods.

There were days when clearing of cheques took a few days to clear and the fraudsters used to enjoy this gap to their advantage.

Nowadays, with the introduction of High Value Clearing, RTGS, etc., it has been brought under control.   However, still some clients find loopholes in the system.  Pending RTGS credit in the evening, they send out money by RTGS to other accounts to make ‘rotation’.   Some make payment of bills to use the available LC limits again.

They create money out of thin air to:

-       Inflate turnover in their account, so that they can further increase the limits of working capital facilities.   One may observe such clients avail adhoc limits, excesses, and enhancements in limits very often without waiting for normal review period of their facilities.

-    Avoid account becoming NPA due to overdue bills, unadjusted excess drawings, devolvement of LC / LG, etc.

-       Avail the usance bills facility which is otherwise lying idle

-       Create a record that they are prompt in honoring their commitment on due dates

Care:

This bubble has to be busted by bankers by taking some precautions while handling the accounts of such unethical customers.

-       Periodic stock verification for outstanding in all facilities (secured by stocks) in ALL BANKS

-    Cross checking the account turnover in ALL BANKS with sales volume, sales tax paid, customs duty paid (wherever applicable), etc.

-       Correlation between income earned and the sales turnover

-       Curtailing deals with sister concerns

-       Discreetly enquiring with company employees about the activities of the company

-       Verifying the company’s balance sheet, P&L account, etc. with the one filed with Registrar of companies