Rs 1 Lakh Crore Error Rocks Karnataka Bank! RBI Questions Deep Control Lapses - What Investors Need to Know!

Karnataka Bank mistakenly credited ₹1,00,000 crore to a dormant savings account on August 9, 2023. The entry was reversed within three hours, and since the account was inactive, there was no financial loss.

However, the bank's risk management department only brought the incident to the board's risk management committee nearly six months later, on March 4, 2024. Further board discussions and IT presentations followed until October 2024.

The Reserve Bank of India is questioning Karnataka Bank's internal controls and risk management practices, particularly focusing on the delayed escalation of the "fat finger" error. An audit of IT systems was conducted, and four to five senior executives were reportedly asked to leave the bank.

Karnataka Bank stated the incident was an "earlier operational matter which was duly identified and resolved... in accordance with applicable guidelines. The issue was addressed comprehensively, and no financial loss was incurred. It was detected through our routine due diligence mechanisms and strong internal controls, and was duly reported to the regulator during the previous reporting cycle."

Impact: This news could impact investor confidence in Karnataka Bank, potentially leading to short-term stock price volatility. It highlights concerns about operational efficiency and regulatory compliance, which are critical for financial institutions. Rating: 6/10.

Terms: Fat finger error: An accidental input error made by a human operator, often when entering data, leading to an incorrect transaction. Dormant saving bank account: A bank account that has had no customer activity (deposits or withdrawals) for a prolonged period, as defined by the bank or regulatory guidelines. Risk management committee of the board: A committee formed by the bank's board of directors to oversee and manage the various risks the bank faces. CISA expert (Certified Information Systems Auditor): A professional who audits information systems to ensure they are protected against threats and are reliable. Qualified Institutional Placements (QIP): A method of raising capital by listed companies through the issue of equity shares or convertible securities to qualified institutional buyers.