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Indian banks hit by record fraud boosts insurance sales

An Indian Railways staff counts currency notes of 500 denomination at a ticket counter, one of the few places still accepting the high denomination notes, in Allahabad, India , Wednesday, Nov. 9, 2016. Indians awakened to confusion Wednesday as banks and ATMs remained closed after the government withdrew the highest-denomination currency notes overnight to halt money laundering in a country where many in the poor and middle-class still rely mainly on cash. (AP Photo/Rajesh Kumar Singh)

Mumbai :The top insurance broker in India sees an opportunity to increase sales to the nation’s banks reeling under a string of recent frauds.

Marsh & McLennan Cos. predicts the premium pool for insurance against fraud, robbery and other losses at Indian banks will climb as lenders bolster protection. The local unit of the New York-based company is seeing a 30 percent jump in inquiries from Indian banks, with some seeking to double their cover.

Cover for banks forms a minuscule revenue source for brokers and insurers — annual premium payments total about Rs 1 billion ($15 million) — as lenders would dip into their profits for the smaller frauds that were prevalent. However, while the number of fraud cases has halved over the five years through March 2018, the amount involved has tripled, culminating in the record $2 billion scam that came to light at Punjab National Bank this February.

Local lenders have insurance cover for losses of at most Rs 250 million or $3 million, while it’s common to see limits as high as $500 million for similar sized global banks, according to Marsh.

“Looking at the size of operations of Indian banks, limits purchased have been grossly inadequate,” said Sanjay Kedia, chief executive officer of Marsh’s India unit. “As the recent cases showed, some of the claim values are substantially larger than the cover where there is forgery or alteration.”

Punjab National Bank pays a premium of about 50 million rupees under which frauds by employees are covered up to Rs 20 million, Times of India reported in February, citing unidentified sources. That means PNB will have to dip into its finances to make good the losses. An email to PNB seeking detail on its coverage was unanswered.

Bank of Baroda, UCO Bank and IDBI Bank Ltd. have also disclosed frauds in 2018.

The recent frauds mean that more insurance cover for Indian banks will come with higher costs. Marsh said they will end up paying higher premiums, which could have been contained if banks maintained a decade-worth of records of losses and remedial actions.

Marsh, which says it works 35 of the top 50 banks in India, declined to share names of banks that are seeking to increase coverage citing confidentiality agreements. The company is also the top insurance and risk solutions broker in India for companies, and earns most of its revenue from these commissions.

There are inquiries for raising the cover for banks manifold and conversations are underway with various lenders, said K. G. Krishnamoorthy Rao, chief executive officer of Future Generali India Insurance Co. Ltd., in an interview at his office last week.