In August 2023, Karnataka Bank experienced a significant operational mishap known as a 'fat finger error,' which has recently attracted considerable attention from regulatory bodies. The incident involved an erroneous credit to a dormant savings account for an astounding amount of Rs 1,00,000 crore. Fortunately, this transaction was reversed within three hours, preventing any financial implications due to the erroneous transfer. However, the repercussions of this error initiated internal discussions regarding the bank's risk management protocols and operational oversight.
The bank's leadership was alerted to the situation by its risk management department, which informed the board about the error nearly six months later, on March 4, 2024. This delayed escalation raised concerns about the efficacy of internal controls, leading to directives for a comprehensive report and root cause analysis by March 11, 2024. Following this, the IT department provided a detailed explanation on March 15, followed by a presentation on March 28, elaborating on the incident's background, analysis, and preventive measures.
An audit by a Certified Information Systems Auditor (CISA) was initiated to investigate the technology-related causes of the error. In response to the incident, the management decided to let go of several senior executives deemed accountable for the oversight. The Reserve Bank of India (RBI) is currently closely scrutinizing Karnataka Bank during its annual supervision, particularly regarding the effectiveness of its internal controls and risk management practices.
The RBI raised pressing questions about the delays in reporting the error to management and board members. The seriousness of the situation would have escalated had it involved a non-dormant account, indicating potential financial consequences for the bank. Despite the issues stemming from the fat finger error, Karnataka Bank maintains that it has resolved the matter in accordance with established guidelines, highlighting that no financial loss was incurred due to its robust internal control mechanisms.
As of FY25, Karnataka Bank reported total advances of Rs 76,541 crore and deposits amounting to Rs 104,807 crore. The bank faced leadership challenges, notably with the recent resignation of its Managing Director and CEO, leading to a notable turnover of senior officials, particularly those appointed after 2023. Overall, while the fat finger incident serves as a reminder of the importance of operational integrity, the ongoing scrutiny underscores the necessity for stringent risk management within financial institutions.