Page 44 - Banking Finance October 2024

ARTICLE

Fraud Risk

Management in

Banking

Amit Kumar
Chief Manager Faculty
SBILD Bhavnagar

Fraud risk management is a fundamental aspect of overall Risk Management within the banking
sector. In India, banks adhere strictly to guidelines set forth by the Reserve Bank of India (RBI) to
prevent, detect, and promptly report fraudulent activities.

F raud risk management is a fundamental aspect systematic approach employed by financial institutions to

identify, assess, mitigate, and monitor the risks
of overall Risk Management within the banking
associated with fraudulent activities. It encompasses a
sector. In India, banks adhere strictly to
guidelines set forth by the Reserve Bank of India
(RBI) to prevent, detect, and promptly report fraudulent range of strategies, policies, procedures, and technologies
aimed at preventing, detecting, and responding to
activities. Emphasizing prevention, early detection, and fraudulent schemes that could result in financial losses,
swift reporting, these guidelines aim to safeguard the reputational damage, or legal liabilities. The goal of
integrity of financial institutions and protect stakeholders' fraud risk management is to safeguard the institution's
interests. assets, protect customers' interests, maintain regulatory
compliance, and uphold the integrity of the financial
The policy framework established by the RBI focuses on system.
several key principles. Firstly, it underscores the
importance of identifying early warning signs of potential Classification of Frauds
fraud. This proactive approach allows banks to implement Any fraud can be broadly classified as
corrective measures swiftly, thus mitigating the risk of Internal frauds - involvement of employees
fraudulent breaches. Moreover, maintaining a robust
External frauds - by customers or third party
review mechanism is essential to preempting fraudulent
activities and ensuring compliance with regulatory
Furthermore as per Indian Penal Code provisions -
standards.
Frauds can be classified as under
Misappropriation and criminal breach of trust.
Fraud Risk Management - Defined
Fraudulent encashment through forged instruments,
Fraud risk management in banking refers to the

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