What is a SWIFT? ICICI Bank, Yes Bank, BoB, other major banks face fury from RBI
SWIFT is a universal system through which one can get money from one part of the world to another.
SWIFT or the The Society for Worldwide Interbank Financial Telecommunication has once again stolen the limelight in the banking sector, after the Reserve Bank of India (RBI) had levied heavy penalty on 19 banks, both state-owned and private. This includes some renowned banks like Bank of Baroda, ICICI Bank, Yes Bank, Allahabad Bank and Canara Bank. They were asked to pay a a lump sum amount of Rs 10 crore whereas Karnataka Bank, United Bank of India and Karur Vysya Bank were asked to pay Rs 8 crores.
This comes after the chaos created by the Punjab National Bank (PNB) fraud last year, which happened due to the sheer misuse of SWIFT system of the bank, which was then not integrated with CBS. The country had to incur a loss of 2.1 billion US dollars, due to a scam created by Nirav Modi and Gitajanli Gem's owner Mehul Choksi. RBI has tightened the reins of security and monitoring since then , to ensure that no more such cases occur in the future.
The reason behind RBI's fury on above mentioned banks can be due to potential risk arising in loans, considering finally some sign of relief has been witnessed in banking systems stressed asset dilemma which has dented earnings for quite a few fiscal.
So, what is this SWIFT?
It is nothing but a software network that aids financial institutions all over the globe to send and receive data about financial transactions that occur around the world. This ensures that the data is sent or received is in a secure, standardized and reliable cocoon. In other words, SWIFT is a universal system through which one can get money from one part of the world to another.
Before this advanced network that operates in 212 countries with over 10,000 financial institutions, money brokers, clearing systems and corporate, there was a system called TELEX. Due to its slow operating system and lack of security, it was discontinued, as technology was advancing with rapid progress.
With SWIFT, funds are not actually transferred. It instead, with the use of SWIFT codes, sends payment orders between the institution's accounts. SWIFT also regularized the the Bank Identifier Codes (BIC) and International Bank Account Number (IBAN). IBAN has its presence in specific countries only.
BIC are nothing but specific 8-11 character codes which helps one recognize the specific bank, to make sure that the funds move along the correct and intended path. Since the codes are unique in nature, the SWIFT system gets more safe and tightly bound.
RBI commented that in the wake of SWIFT-related frauds involving significant amount, reported recently by Punjab National Bank, RBI reiterated its confidential instructions and mandated the banks to implement, within the stipulated deadlines, the prescribed measures for strengthening the SWIFT operating environment in banks.
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