Thanks to its indemnity cover, Citibank may not have to provide for the alleged multi-crore fraud by Shivraj Puri, the relationship manager at its Gurgaon branch. The bank has insured itself against fraud or dishonesty by employees. Sources told Business Standard that Citi US had been insured by American International Group. India was part of the global insurance policy, said a senior bank executive on condition of anonymity.
The Citibank India spokesperson did not respond to queries.
Puri is accused of masterminding a fraud of Rs 400 crore (Rs 4 billion) on rich clients. The Gurgaon police has discovered that Puri duped about 20 high networth individual clients into investing in Citibank schemes, but their money was diverted to accounts opened in the name of his wife and two other suspects.
"We have not come across claims of this nature. It will open up new frontiers for discussion and will definitely impact the premium. The rates have been hardening for some time, as the number of claims have been very high," said United India Insurance Chairman and Managing Director G Srinivasan.
Generally, banks take a blanket cover designed to cover any direct loss suffered by them in unforeseen situations. The cover insures money securities, gold, cash lying with banks, cheque, participatory notes and losses in transit. Banks, according to their needs, extend the policy to cover counterfeit currency and computer fraud.
"All major banks take this cover. It insures them against such frauds. The sum assured depends on the probable maximum loss of a particular branch," said Dilip Baba, head, products, Bajaj Allianz General Insurance.
Each bank gets a customised policy, depending on the number of branches, balance sheet size, etc. Generally, financial auditors insist on this cover.
Another senior executive at a large general insurance company said Axis Bank had taken a Rs 200-crore (Rs 2 billion) indemnity policy. Other major banks, including ICICI Bank and State Bank of India, have also bought the policy.
Despite a few such large claims, the claim ratio, the percentage of premium earned and claims paid out, is around 100 per cent.
The premium on these policies depends on the past claim experiences. "The claim experience is bad. It runs over 100 per cent," said another executive. The premium rate varies from three per cent to six per cent on basic sum insured.
