Page 26 - Banking Finance January 2020

ARTICLE

banking transaction or in the books of accounts maintained frauds reported during 2008-09 and 2018-19 fiscal years,
manually or under computer system in banks, resulting into involving a whopping Rs 2.05 lakh crore, the highest of
wrongful gain to any person for a temporary period or 6,811 were reported by the ICICI Bank involving Rs 5,033.81
otherwise, with or without any monetary loss to the bank'(1). crore(2).The state-run State Bank of India (SBI) reported
6,793 fraud cases involving Rs 23,734.74 crore, followed by
Bank frauds in India are on the rise which is a matter of HDFC Banks which recorded 2,497 such cases involving Rs
concern to banks and RBI.Consequently, the impact of frauds 1,200.79 crore.
can be huge in terms of likely disruption in the working of
the markets, banks, and the payment system.Besides, Further analysis of fraud related data suggests that, a
frauds can have a potentially debilitating effect on quantum jump in the amount involved in frauds during
confidence in the banking system and may damage the 2017-18 was on account of a large-value fraud committed
integrity and stability of the economy. in the gems and jewellery sector, mainly affecting Punjab
National Bank. Further, during 2017-18, public sector banks
Besides a sharp growth in the number of frauds and the (PSBs) accounted for 92.9 per cent of the amount involved
amount involved in them, innovative approaches under in frauds of more than Rs.1 lakh, as reported to the Reserve
technology driven banking have been adopted by culprits in Bank; private sector banks accounted for 6 per cent.
perpetrating bank frauds which is becoming difficult even
to detect them and undertake preventive measures. In this Public Sector Banks (PSBs) also accounted for about 85 per
backdrop,this paper attempts to study bank frauds by cent of the cumulative amount involved in frauds during
examining analysis of bank frauds, modus of operandi of 2017-18 and, private sector banks accounted for a little over
frauds, Know Your Principles for prevention of frauds, 10 per cent.At the system level, frauds in loans, by amount,
Reserve Bank of India (RBI) and Government of India accounted for more than 75 per cent of frauds involving
(GOI)initiatives, investigation of frauds in banks and offers amounts of Rs.1 lakh and above, while the number of frauds
suggestions to strengthen the machinery in banks for in deposit accounts was at just over 3 per cent.Within the
detection and prevention of bank frauds. loan category of frauds, PSBs accounted for a major share
(87 per cent) followed by the private sector banks (11 per
Analysis of Bank Frauds cent).
With the sweeping changes in the scope and magnitude of
The share of PSBs in frauds relating to 'off-balance sheet
banking transactions witnessed in the past few decades, the
items' such as Letter of Credit, Letter of Undertaking, and
emergence of hybrid financial products, the increasing trend
Letter of Acceptance was higher, at 96 per cent.Of the seven
of cross border financial transactions &the dynamics of real-
time fund movement and transformation,bank frauds are classifications of fraud in alignment with the Indian Penal
Code, 'cheating and forgery' was the major component,
on the rise both in terms of number and quantum.Hence, it
followed by 'misappropriation and criminal breach of
was felt necessary for RBI to create a database relating to
bank frauds for review and monitoring.

Accordingly, RBI made it mandatory for scheduled
commercial banks (SCBs) to report fraud cases way back in
July 1970. In 2005-06, such reporting was extended to urban
co-operative banks (UCBs) and deposit taking Non-Banking
Financial Companies (NBFCs), registered with RBI. In March
2012, NBFC-ND-SIs (systemically important, non-deposit
taking NBFCs) having an asset base of Rs. 100 crore and
above were also brought under the reporting requirements.

According to the data given by RBI in response to an RTI
query as on June 13, 2019, of the total 53,334 cases of

26 | 2020 | JANUARY | BANKING FINANCE