MUMBAI: Citibank is likely to dip into its global insurance policy to compensate customers defrauded by its wealth manager, Shivraj Puri. The bank on Saturday said that it is working towards a 'fair compensation ' for those who lost money in the fraudulent scheme marketed by Puri.
Citi's payment will, however, be limited to the principal amount investors put in. The amount invested in Puri's scheme is expected to be in the region of Rs 300 crore. In return, the bank would be seeking an assurance from the victims that they will transfer all their rights of recovery to the bank and a promise to assist the bank.
In addition to following the money trail, the bank would also pursue a claim with its insurers. The American bank is understood to have a cover that is globally managed, which, among other things, covers losses due to fraud by employees. According to insurers, claims of this nature are covered by a professional indemnity policy, which is sold as an add-on cover with the bankers' bond.
The Bankers Blanket Bond (BBB) is a comprehensive policy used by banks to transfer operational risk. "Most banks in India have purchased the cover but with very low limits in contrast to other Asian markets where the limits are higher and coverage broader. Many foreign banks have taken reinsurancedriven comprehensive policies in line with their global programs ," said Sanjay Kedia, CEO and country manager, Marsh India, an international insurance broking firm.
In a statement issued here on Saturday, Citi said, "We have since been in contact with our impacted customers and are committed to safeguarding our customers' legitimate interests. During this interim period, we have been reconciling amounts involved with impacted customers and are now commencing the process of working towards a fair compensation for them."
Sources said that although initial indications were that Puri made wrong bets on index futures and lost all money, they have reasons to believe that he! has mad e bets on both sides of the market and there is a possibility of recovery.
According to an official with a broking house, claims of this nature have been paid internationally by insurance companies to banks under the professional indemnity policy. For instance, there has been a case where a bank was paid $7.5m under the professional indemnity policy for losses suffered by a client who alleged negligence by the bank's asset management division. In another case, the insurance company had paid out $8m for a bank that faced a claim for providing bad advice to a private banking client.
In its statement, Citi said that the process of working out compensation would happen over a period of time. "We would like to thank our customers for their patience and co-operation . We will also continue to support the investigating authorities fully until this matter is resolved and brought to its logical conclusion," it said.
Citi's payment will, however, be limited to the principal amount investors put in. The amount invested in Puri's scheme is expected to be in the region of Rs 300 crore. In return, the bank would be seeking an assurance from the victims that they will transfer all their rights of recovery to the bank and a promise to assist the bank.
In addition to following the money trail, the bank would also pursue a claim with its insurers. The American bank is understood to have a cover that is globally managed, which, among other things, covers losses due to fraud by employees. According to insurers, claims of this nature are covered by a professional indemnity policy, which is sold as an add-on cover with the bankers' bond.
The Bankers Blanket Bond (BBB) is a comprehensive policy used by banks to transfer operational risk. "Most banks in India have purchased the cover but with very low limits in contrast to other Asian markets where the limits are higher and coverage broader. Many foreign banks have taken reinsurancedriven comprehensive policies in line with their global programs ," said Sanjay Kedia, CEO and country manager, Marsh India, an international insurance broking firm.
In a statement issued here on Saturday, Citi said, "We have since been in contact with our impacted customers and are committed to safeguarding our customers' legitimate interests. During this interim period, we have been reconciling amounts involved with impacted customers and are now commencing the process of working towards a fair compensation for them."
Sources said that although initial indications were that Puri made wrong bets on index futures and lost all money, they have reasons to believe that he! has mad e bets on both sides of the market and there is a possibility of recovery.
According to an official with a broking house, claims of this nature have been paid internationally by insurance companies to banks under the professional indemnity policy. For instance, there has been a case where a bank was paid $7.5m under the professional indemnity policy for losses suffered by a client who alleged negligence by the bank's asset management division. In another case, the insurance company had paid out $8m for a bank that faced a claim for providing bad advice to a private banking client.
In its statement, Citi said that the process of working out compensation would happen over a period of time. "We would like to thank our customers for their patience and co-operation . We will also continue to support the investigating authorities fully until this matter is resolved and brought to its logical conclusion," it said.
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