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Fraud at Bank of Baroda: Risk and Crisis Management Case Study

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Updated: Nov 11th, 2020


The Bank of Baroda (BoB) has established a rather strong presence in the Indian market. However, as the result of several recent financial mistakes, the company has found itself in a challenging situation. Because BoB customers have been proven to have engaged in fraud within BoB’s environment, the firm has been exposed to an array of risks, the most critical of which are excessive media attention and a drop in popularity.

BoB’s first step toward an improvement of the current situation should be formulating an appropriate leadership strategy that will reinforce the significance of corporate social responsibility (CSR) and enhance the organization’s control over its own financial operations. The faster BoB realizes that all areas of its operations are interconnected, the more efficient the framework for managing the crisis will be. At present, it is strongly advisable that the principle of sustainability be used to manage the firm’s remaining financial assets and reduce the many risks that it is facing.

Risk Management System at the Bank of Baroda: Key Components

As a rule, banks use a rather rigid system of risk management (RM) that allows them to reduce the negative impact of a range of outside factors, while at the same time providing an opportunity to make the most efficient use of resources. According to the statement issued by the organization, BoB employs a set of rigid RM principles to reduce external threats. For example, discount options are only given to trusted customers with a long-standing business relationship. However, the current approach is admittedly flawed because it does not allow the bank to determine instances of bill-discounting frauds, let alone prevent them.

Liquidity Risk

The fact that there have been “irregularities with the remittances of foreign exchange” (Dhamija 2016, p. 4) within one of the firm’s departments reveals that BoB may have problems meeting its short-term debts. Therefore, the liquidity risk is going to become exponentially high for the organization. Unless the organizational management introduces a sustainable strategy for addressing this issue, the threat of bankruptcy will become imminent for BoB.

Credit Risk

Given that it was not a requirement for bank customers to provide any goods or services in order to take a loan, it would be wrong to claim that BoB’s credit risk strategy is adequate. Indeed, it would be more sensible to provide only loyal clients with extra opportunities; treating total strangers with absolute trust was clearly a mistake that BoB must not repeat in the future.

Market Risk

The interest rate risks are likely to increase at BoB due to the temporary financial challenges that the company has encountered over the past few months. Similarly, issues associated with the foreign exchange rate and its changes are bound to affect the company to a considerable degree unless an appropriate coping strategy is designed and implemented (Skoglund & Chen 2015).

Exposure Risk

Because BoB is not currently exposed to any entity or cohort of entities, it is safe to say that the organization’s exposure risk is comparatively low at the present moment. However, the company does not owe this fact to any risk management strategy; instead, the current state of affairs can be viewed as a mere coincidence. Indeed, with a close focus on its recent financial concerns, BoB has made zero progress in advancing in the target market.

Investment Risk

The negative publicity that BoB received as a result of its recklessness has clearly affected the investment risks to a considerable degree, yet the current strategy used by the company to manage the situation does not reflect the increased risk. Instead of focusing on a means of marketing that would help retain existing customers and attract new ones, the current approach reiterates the previous one and therefore fails to reflect the fact that the company is ready to address its financial issues and prevent further instances of fraud (Hull 2015).

State-Specific Risks

At present, BoB is not facing any state-specific risks. It could be argued, however, that these risks will appear with the company’s further expansion into the global market. However, with the firm currently struggling to survive in its home environment, dangers associated with foreign policy are not expected to affect the organization to a significant degree.

Operational Risks

As the case study shows, operational risks served as the foundation on which the bank’s fraud problem developed. Due to a lack of tools that could help the company track the transactions made by its customers, BoB found itself a part of the fraudulent plan and, in this way, was deceived by its own clientele. Therefore, the tool for managing operational risks needs to be completely redesigned with a closer focus on the monitoring process.

Legal Risks

Given that the current framework under which the bank operates has allowed its customers to carry out fraudulent actions, it is very likely that the company will face a plethora of legal issues soon, in addition to the other problems that it is already having. In its attempt to retain customers by refusing to adopt a more rigid system of transaction monitoring, BoB has implemented a rather undesirable, and legally questionable, business practice.

Reputational Risks

Given the current deplorable situation that BoB has found itself in, it is clear that the company has had a rather poor reputational risk management strategy. As stressed above, the firm has experienced significant damage to its public image yet has done nothing to address it. Thus, an immediate change of marketing strategy is required, with a heavy emphasis on the importance of security and transparency.

Strategic Risks

As explained above, BoB has been refusing to consider the long-term effects that the current framework will have on its performance in the target market. Therefore, it is crucial to design a viable strategy that could support the organization over a long period of time. An emphasis on sustainability should be viewed as the primary course of action to be taken in the future.

Indicators of Money Laundering at the Bank of Baroda: What Should Have Been Considered

The implementation of a more efficient monitoring device would represent a significant opportunity for the company to improve its current strategy. For instance, regular audits should become part and parcel of the company’s operations. Even though BoB has already introduced audits into its supervision process, the current strategy needs to be altered since the company’s priorities are not yet in order. As long as managers recognize the significance of auditing and regular reporting—and in this way provide a detailed account of all tasks completed and prove the legitimacy of the actions taken—the company will see greater opportunities for increased transparency. As a result, the threat of fraud in the workplace will be reduced to a minimum.

Risk Culture Assessment: Tracking the Factors That Led to the Crisis

The unique customer ID codes and instant cash transaction reports used by the company are efficient. However, the lack of care taken during the data-processing stage clearly served as the basis for the development of the fraud issue. Furthermore, a closer look at the way in which the company promotes its core values reveals that little to no attention seems to have been paid to the enhancement of the foundational principles of corporate ethics—and especially corporate social responsibility (CSR) (Eweje 2014).

Appointing an outside accounting organization to help BoB’s leaders and managers understand how the instances of fraud slipped under their radar is a very good and generally sensible idea. However, this approach also has its flaws. While people with expertise will be able to shed light on how the events in question occurred, they are unlikely to point out why the problems emerged in the first place. Seeing that the instances of fraud are likely to be connected directly to a mismanagement of the company’s day-to-day operations and a lack of decent leadership skills, it could be argued that the issue in question is linked to a range of other domains of BoB operations (Chance & Brooks 2015).

Interrelationship Between the Risks: Tying the Loose Ends Together

The firm’s financial risks have a clear and direct connection to its strategic and management-related risks as well. As explained above, BoB’s current plan to alter its existing risk management approach, especially with an emphasis on the financial aspects, is important, but it will not really address the source of the problem. The instances of workplace fraud passed unnoticed not only due to the lack of a secure system of financial transaction management but also due to the absence of a strong leadership framework. In other words, the management-related risks are just as important to the company’s current operations as the financial ones (Sadgrove 2016).

Furthermore, BoB will have to take chances with its current market risks framework. Given the recent scandal, it is no surprise that the firm is not viewed as a desirable one to invest in by future partners. The market risk management approach will have to be shaped with an eye toward promoting openness and transparency as the foundational principles of the firm’s operations. Because the identified approach may raise some eyebrows as far as the issue of customer data safety is concerned, it is also imperative that BoB focus on the enhancement of its IT framework, especially in regard to its management of data security. More specifically, devices for preventing cyberattacks and similar actions that allow cybercriminals to steal customers’ personal data should be incorporated into the company’s set of data management tools (Engemann & Henderson 2014).

Getting the Company’s Priorities Straight: The Course of Action

At present, establishing more rigid control over financial transactions is an urgent need for the company. The use of traditional tools such as audits and regular reports is a necessity. Furthermore, by incorporating the latest technological advances into its risk management framework, BoB will be able to improve its poor reputation (Corelli 2014).

Furthermore, considering the company’s long-term goals, BoB leaders should redesign the management and leadership strategies adopted at the organization. The active promotion of ethical values, CSR principles, and other related ideas must form the foundation for building a secure financial risk management approach. Employees must have an ethical foundation for their decision-making processes; otherwise, the basic problem will not be addressed, and the staff members will turn a blind eye to any violation of the company’s ethical standards by the customers.


BoB has been operating in the Indian market for quite a while and has enjoyed a moderately positive reputation up until recently, when the bank managers made a series of dubious decisions. The poor choice of risk management strategies made it difficult for the company to remain competitive and retain its positive reputation. Therefore, a more sustainable approach toward financial resource management is advisable.

It is imperative that the company reconsider its current approach toward the supervision of its financial transactions, especially those carried out by customers. As a result, a safer environment will be created, and a foundation will be set to prevent future instances of fraud. In other words, the case study in question shows quite clearly that there is a direct correlation between exposure to financial risk and the company’s choice of strategy in non-financial areas of operations—in particular, those that are related to leadership, marketing, and information management. As soon as the leaders of BoB are able to set the company’s priorities straight and determine the ethical and leadership-related principles according to which the firm should be run, they will have created a firm foundation for handling the bank’s current crisis.

Reference List

Chance, D M & Brooks, R 2015, Introduction to derivatives and risk management, Cengage Learning, Stamford, CT.

Corelli, A 2014, Understanding financial risk management, Routledge, New York, NY.

Dhamija, S 2016, Fraud at Bank of Baroda: manage risks or manage crisis, Ivey Publishing, Ontario.

Engemann, K J & Henderson, D M 2014, Business continuity and risk management: essentials of organizational resilience, Rothstein Publishing, Brookfield, CT.

Eweje, G 2014, Corporate Social Responsibility and sustainability: emerging trends in developing economies, Emerald Group Publishing, Bingley, UK.

Hull, J C 2015, Risk management and financial institutions, John Wiley & Sons, New York, NY.

Sadgrove, K 2016, The complete guide to business risk management, Gower Publishing, Ltd., Farnham.

Skoglund, J & Chen, W 2015, Financial risk management: applications in market, credit, asset and liability management and firmwide risk, John Wiley & Sons, New York, NY.

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