More about this can be read in this article dt.22/06/2012
The following is the Modus operandi
* The member of the public, open Bank accounts and obtain obtain ATM cards.
* The ATM cards were used to withdraw money only from ATMs of Federal Bank of India.
* In one transaction containing withdrawal of Rs 10,000, the accused would deliberately leave the last note (eg Rs 100) inside the ATM machine.
* Since the machine generated and flashed a message of “failed transaction”, the accused used to claim the refund of entire Rs 10,000 from the private banks.
* While the private banks used to refund the amounts, the Federal Bank of India was denied the refund of the actual amount withdrawn (Rs 9,900) because the private banks used to rely on the “failed transaction” slip/message.
The increase in complaints regarding part disbursement/failed disbursement was noticed during 2011, and in January 12 Shri G.Padmanabhan, Executive Director, Reserve Bank of India in a speech,
mentioned about defrauding the ATM System, by uniquely Indian approaches i.e – forcibly holding on to a few pieces of notes in ATM machines that has cash retraction system- (i.e. cash getting sucked back by the machine, if not removed within a specified tome, often seconds), and then claiming non receipt of cash.
To curb the misuse, NPCI had proposed to remove this functionality from all machines.
The decision was taken after a pilot proved extremely effective in curbing such misuse.
Since than many Banks in India have removed the Cash Retraction functionality from their ATM machines eg Axis Bank.
After the news of the amount lost by Federal Bank in the ATM fraud, all Banks will be taking immediate steps to disable the Cash Retract facility.
Better Late than Never